The area of discussion is on left where tree is surround by mulch. Considering grass around tree with short wood retaining wall just off sidewalk

But the area of discussion is not clearly visible from the photo provided!! Please provide closer, clearer and more detailed photos.

Here is a photo giving a better view of front yard. We are looking for and like rustic style to include some grass

The space looks too small to make grass practical. Have you thought about the hassle of lugging a mower in and out of the area just to cut a few square feet in an awkward shape? Ground cover plants would be much more practical and easier to maintain. Or a mixed perennial and shrub bed if you are into gardening. To make plant recommendations people need to know the geographical location.

Thanks for the input. To help abit more the area is probably about 15 foot wide by 15-20 foot long. In addition to grass we like look of white picket fence around edge. We want to remove aloe Vera plant

The area is 17’x24’ and we are in Southern California

IMHO white picket fence, lawn, and painted brick are not rustic. I think your mulch looks nice but if you don't like the bark you could always replace it with a stone/gravel one.

The aloe vera could be replaced with a lot of things. Trailing rosemary is evergreen, low water use, winter flowering; ornamental grasses certainly fit your rustic theme, and lantana is long flowering. there are a lot of options, would you like something low or bushy or flowering?

I do hope you don’t put a lawn in with the severe drought in the southwest.

Probably something lower I think

A low, evergreen, low water use plant that can spread quite wide is myoporum parvifolia, which can be used as a much lower water use grass substitute.

and two others a little bushier are Teucrium chamaedrys and Teucrium cossonii. Cossonnii is the lower, grey leaved one in photo while taller greener chamaedrys is next to it.

I think succulants look great with these low shrubby type plants but you don't have to use them. There are also some great California native sages(Salvias) but they aren't everyones cup of tea.

Good luck with your yard!

If you decide to do a fence I think this is a bit more rustic...or a variation on these

https://www.homedepot.com/p/DeckoRail-6-ft-Aluminum-Cedar-Tone-Southern-Yellow-Pine-Deck-Railing-Kit-196312/205333495

and for the posts

https://www.homedepot.com/p/4-in-x-4-in-x-4-1-2-ft-Cedar-Tone-Pressure-Treated-Southern-Pine-Double-V-Groove-Deck-Post-211700/205853709#overlay