Are you talking about the soffit above the shower?

Yes, that huge space that I have no idea what to do with.

Actually that soffit and the huge amount of wall space in the shower going up to the soffit. I assume the soffit is that block of wall sticking out?

Yes, that block is the soffit. You could try tiling up to it. It seems to align nicely with the depth of the shower.

It aligns perfectly actually. As for painting, would the soffit be considered wall or ceiling?

You could treat it as either, although I think it works better as part of the ceiling.

Tiling up to the soffit... There is so much space there, I'm worried that it will look odd.

I can close some of the gap by hanging the shower curtain higher. Any other ideas out there?

It's hard to say specifically having no real information, however, in general, it often works well to treat a surface the same way until there is an interruption - as opposed to changing the finish mid-way.

Could you install spotlights (IP rated for showers?)

Forgive me for commenting without addressing the specific issue your raised. Our company was hired to remodel a bathroom with a similar configuration. The bathroom was poorly ventilated and water vapor from the tub/shower condensed on the walls in the vicinity of the skylight. This condition promoted mold/mildew growth. Make sure you've got a properly sized vent fan located above the tub/shower to deal with moisture. It should run for 15 minutes or so after the shower is turned off. If you can't count on users to turn the fan on when using the shower (like my teenage son, for example,) you can interlock the fan with the lights (the less expensive solution) or have it activated by a humidity sensor (the more expensive, and less-reliable solution long term.) Good luck.

The moisture would be an issue if the skylight isn't vented. Other than that, I would leave it.

There is a fan for ventilation, you just can't see it. And I like the idea of installing lighting on the soffit.

When you paint, paint ceiling as well, even if it is 75% of wall color, if paint was close to tile color it would all blend...pic of whole space would be good ....

The bathroom is so big that moisture hasn't been a problem. All the sheetrock is mold/mildew resistant.

I will get more photos ASAP. So I should do the walls and ceiling one color that compliments whatever tile I choose?

Here are a few more photos. Forgive the chipped paint, unfinished area around the skylight, etc. This was my dad's house that I inherited several years ago and this bathroom needs help.

If you want to make the soffit disappear (which I would), paint it the same color as the walls.

I'm wondering now if I should skip the idea of installing wainscoting. Might look odd with such high walls. Thoughts?

Are you re-tiling shower surround or planning to exactly match existing tile? If neither of these, I say paint same as tile color. If so, I would install tile on all shower walls to start of soffit.

It's just a fiberglass surround, it's not staying. I plan to tile in the shower up to the soffit and pull a color from the tile for the wall paint. - that will work, right?

Kewl!! I like that idea!

I agree with tiling up to the soffit and include the underside of the soffit as well. Raise the rod. Then paint the front of the soffit the same as the walls. You can do a taller wainscoting that would ground the room giving it better height proportions.

Thank you so much Scott Design!

Consider extending the soffit down with a partition that could be finished with tile and install frameless glass shower door and enclosure. It would perfect for a steam shower.

That sounds great and it's really what I want but there's a bathtub to contend with.

I was thinking that the soffit partition would extend down to ~84" above finished floor in order to accept glass door and enclosure. Lower if you want steam shower and make it air tight.

I have a similar skylight in my bathroom. I painted the ceiling the same as the wall color, and I found it to heighten the bathroom and blend it together, rather than accentuate the odd transition. Also a pleated shade in the skylight itself finishes it really nicely.