If the window is wood rather than vinyl, we typically apply a marine grade varnish/lacquer such as Daly's Seafin to the frame/casing. Casing the window with tile, all the way around would be another option. As for providing privacy for the window, you can apply a film to as much of the windows as you feel provides you privacy. You could also select a window with privacy glass. The style of window you choose (dbl hung, awning, casement, etc.) will have some impact on how you add apply the privacy.

We would not recommend using an existing window, and certainly not one that is wooden. Marine grade paint can be used, but that is not the real issue. The issue is that, by design in order to have movable parts, windows have cracks in their construction that will allow water penetration. You also have no idea how the window was originally installed. We find that most windows are not correctly installed - the house wrap is not wrapped around to protect framing from water, the windows are not properly flashed, and if they have a nailing fin only two nails are in each side instead of being nailed in properly. This can allow water to seep into the framing and ultimately create mold and then rot. The window is going to expand and contract at a different rate than any of the surrounding material, even more so if not nailed in properly, and small cracks appear where the tile is butted into the window and grouted in - the grout then develops hairline cracks and as a flat surface allows water to seep into the walls.

We recommend a high quality, fully enclosed vinyl window such as the Hy-lite window for wet spaces. It comes in varying degrees of privacy.

We have torn out showers that are leaking with costs ranging up to $10,000 for the tear out, damage repair and replacement of just the shower. It is just far too much money and risk to cut corners up front, imo.

Waterproofing the interior of a window in a shower is a liability issue for most contractors. Our past experience with this type of installation has led us to a few typical responses. First...is there any other option, like moving the window out of the shower area or deleting the window entirely? If the answer is no, then we require (for the sake of construction liability issues) that the actual window be replaced with a solid vinyl, solid aluminum or solid fiberglass unit. Waterproofing the framing of the house, the studs that hold up the walls and the plate of the opening is done prior to and in concert with the exterior waterproofing and the window installation. No wood is used in the exposed finished window. Our tile setter has worked with us on numerous niches and windows, so the last line of defense is his bailiwick. Privacy is a usability concern. Window film can be applied, obscure glass can be utilized in the window fabrication process. We recommend obscure glass, though an additional shower curtain has been utilized in at least one of our installs (we didn't do obscure glass at the homeowners request). Surface coatings on wood do not work in the wet environment of a shower, not from a builders risk point of view. We don't like call backs, so if we build it correctly and detail properly, we don't get them. Tearing out something we just completed because it was not done according to best practices is expensive and stupid. Long term neglect of bad practice means lots of rot. We demolished a stained glass window in a steam shower last spring... the rot went deep and reframing was required...at extra cost to the homeowner. We deleted the window and created a shower niche, properly waterproofed and sealed.

Absolutely, Molly is correct. Regardless of what you do, create an annual maintenance ritual of replacing the caulk around the window.

Thanks everyone, I was hoping to cover the existing but from what everyone has posted I see I need to replace with a vinyl or fiberglass window and add waterproof flashing for both the outside and inside.

Right on! Enjoy the new shower when you get it finished.

Ironwood has brought up some additional good points. We do a lot of 6' showers where the window is in the back, farthest from the shower head (see attached photo, and yes there is a hand held shower head within splash range of the window sill), so direct water hit is not likely and it is also unlikely that shampoo bottles will be placed on these window sills because niches are incorporated into the design. So my thoughts are if no direct water will hit the window sill (or wet shampoo bottles) because the shower is large and the shower head is far from the window AND a good bath ventilation is available and used AND the homeowner is willing to do maintenance then the window concept is viable.
One last thing, consider how the window will look from the outside of the house.

This is so helpful. I want to put vinyl plantation shutters in my shower. Similar to photo below. My contractor says he needs to tile into the recessed area to protect it from moisture, but my shutter guy does not want to risk drilling holes in the tile to mount the shutters as he is afraid of cracking the tile. I have these all over my home and really wanted this look. Can you advise any way to protect the recessed area for the shutters to still be installed? The shutters are vinyl and waterproof. Thank you!!!