What can I do with this alcove?

Is your room formal? How about installing shelves for a bookcase or display items? It is deep, you could add doors and use for odd or bulky items that you might want out of sight.

Have you considered putting in shelves and cabinet doors for more storage of family board games or books? Since you may not need to get into it often, you could store anything you need that might include punch bowls and other supplies such as table clothes etc. Anyone can use more storage and doors on it would hide the stored items.

I'd frame in and add doors.

Is there another on the other side? Or just one?

i like the answer above of putting doors on it - you could make doors like we did and hide electronics or whatever. https://www.frugalfamilytimes.com/2019/01/diy-media-cabinet-built-in.html

Another initial idea is to find a beautiful antique dresser to slide into the space.

My first thought is to install shelves or a closed unit with doors! Or a good place for a doggie room!

I cant see the whole room to see scale so Im just tossing out some ideas here.

Adding doors and then shelves above is one idea. You could also add doors above for a large built in cupboard.

You could pretend theres a doorway to another room and install a real door and frame. Do shelves behind or a pole for extra coats etc. If theres a door/opening on the other side of the fire place you could mimic that opening to balance things it out.

Another idea would be to remove everything back to the walls. Take out that horizontal piece and make the window side flush. This would give you an open alcove. You could do built in shelves or a free standing shelf unit. Would also be a nice place for a small free standing cupboard. You might also be able to get a comfy upholstered chair there by the fireplace.

Here’s a full picture of the room. On the other side of the fireplace/alcove/cutout wall is our formal living room

If you dont have a good use for the alcove but do use the fireplace then why not bring firewood indoors. Make the alcove storage for firewood. It will keep it dry and ready for burning when your ready for using the fireplace. If it is not woodburning of course this will not work.

Added some shiplap wallpaper and rustic corbels(from Hobby Lobby), a little bench and stuff we already had. A simple fix to our awkward alcove

After seeing the entire room, stunning by the way. I would add a backing to the upper open area and add doors below so it looks as a built in bookcase, this way it’s a whole focal point, or just add the doors below, but be sure to keep it with the same paint used before.

Hello, one other idea is to put a small desk in there to use is as a mini office,

https://www.youtube.com/watch?v=yE0T2VYa_bY

Hi! A drop down desk would be fabulous in that space!

I'm a sucker for simple and cozy. A wire basket with logs would look so cute without adding clutter.