The room is maybe 6x9 feet, teeny indeed, with a weird niche that is too small for a crib. Taking inspiration from all the recent crib-in-the-closet design, we're talking about building a custom platform and storage right in to the niche, in lieu of a traditional crib.
Here's some inspiration.
via apartment therapy
Love the drawers below and shelf above; we would just add a rail of some kind to the front for now, leaving a little reading nook later
One Little Minute Blog
There's a simple example of a rail. And space for baskets below may be easier than drawers. Stripes are cute, too, but I love the solid color of this next one.
via Daddy Types
If you really wanted to get creative, you could create cutouts for crawl spaces (for a toddler)
Or build a playhouse underneath
Or keep it simple, and build a curved rail instead of a slatted one.
via Oh Happy Day
What do you think: would you put the baby in the closet?
I think this is such a smart solution to open up a small room!