In Brooklyn (two-floor apartment located in an 1823 firehouse), designer Scott Newkirk created a division between the living room and the bedroom using dramatic floor-to-ceiling curtains made from burlap sourced from Circle Visual; "They create a sense of intimacy and add texture and color to the space." from blog Remodelista Daily
Using a small bookshelf turned outward and a curtain, why not create a closet in a nook or behind a door? Making sure to anchor the bookcase to the wall for stability, you could mount a hanging rod across the allotted space and disguise it with a curtain. If the bookcase is not sturdy enough to attach the hanging rack to, simply add a wall-mounted rod, like this one from Improvements.
Good Questions: How To Live With No Closet?
If you live in a small space, replace traditional closet doors that swing out with curtains or hanging screens. Image: Woven Wood Panels from the Shade Store.
"This is our closet/spare room. We don't have any real closets in our apartment, so we turned a 1/2 bedroom into a storage space. If you don't have a closet already, you can install racks and hangers on a wall to make one. We used the ClosetMaid 6'-8' Closet Organizer. It was a pain to install, but it gives us all the storage we need."
Using a curtain to conceal the closet can save a lot of space by reducing the floor area that would otherwise be needed to open a door. Photo: Arthur's Long-Distance Home