what a great space for books...

Put a large framed mirror or artwork completely covering the space. Put it on invisible hinges (invisible to the outside eye, or hinged from the top) and have your secret hiding space for stuff or valuables. That is what I would do with it.

I hate a tv on top of the fireplace.

oooh....a nice spot for a mirror...leaning...and candles to relfect...beautiful!

a microwave and a mini fridge...

seriously, cabinet doors and shelving or make the hole smaller and put a large picture over it and use it as hidden storage. Bookshelves are probably the easiest.

A fish tank would look amazing.

I can think of a few things that might be cool:

You could build a couple of cubbies or shelves into is and arrange some cool objects and/or books.

Build a false wall to make it shallower and hang a nice piece of framed art. maybe put a hinge on the false wall or framed art so that you can have a secret hiding space for more storage.

Fill it completely from top to bottom with a bunch of logs so that the ends of the logs are facing out. That would be fitting since the niche is over a fireplace

OR

Since it looks like it's got a couple of outlets, you could make a really cool illuminated shadow box diarama sort of like what you would see at a natural history museum.
Could be pretty awesome.

Shelves! And then maybe merch it out with some nice pottery. Use the outlets for curio lights.

A fish tank would be nice too, except fish are susceptible to temperature changes. You could end up with broiled goldfish. Or would they be poached?

Plus you might find it hard to clean and feed them up there.

Art, mirrors, a large piece of sculpture, beautiful wallpaper, lots of fun possibilities - have fun!

I think a grill would be great and functional there, that way you can enjoy a fire and have some food. 8^)

j/k.... I love the above comment about a hinged mirror to hide the space and deicate it to storage.

I have a similar thing and mine now has nice shelves in it and my iMac sits there when I am not using it or when I am using it to watch a DVD. The shelves have treasures and books on them. Works in my place.

An interactive sculpture

A custom fish tank

big LCD with favorite pictures in slideshow mode

ginormous Maitreya if you're into that

hamster house with habitrail tubes or giant ant farm

big fluffy exotic plant or tall Japanese plant

rare collectible textile (e.g. Tibetan rug)

I don't think televisions are good for above the fireplace because the heat is really bad for the television. I think I am correct.

Anyways, I always thought of a piece of Onyx backlit, if it can be done it would function as both lighting and art.

Whatever you do - get rid of those granny dresses you're using as draperies!

...murphy bed for a cat.

We have a similar "hole" right above our fireplace. I'm not exactly sure what the builder was thinking it was for. Ours doesn't even have any outlets like yours does. We opted for the "cover it with art" option. We bought a length of marimekko fabric and some stretcher bars and covered that thing right up.

The only time we use the hole is during the holidays to put up some nutcrackers and other festive decorations. We just move the art (which is super light) to a closet.

My husband did suggest we put a secret safe behind there, but that idea never went anywhere.

Flat Screen.

These dumb holes above the fireplace are in EVERY single home in Oregon. I'm dealing with the same thing in my new place.

But it let's us get creative with a weird space!

I'm thinking take advantage of one of the outlets with a fantastic huge lamp or sconce- large enough to hide both outlets. What a cool niche of light that could be. On the other hand, difficult to assess if it would work with just the photo. Good luck!

my parents have one of these above their fireplace and my mom fills hers with these enormous plant/flower arrangements. she mostly uses fake flowers and foliage to save herself a lot of time/energy but picks things to correspond to the season. it looks like a little nature scene or as someone mentioned above, almost like a display at a natural history museum.

A fantastic painting with a light installed over it, wasp style.

You might want to paint just that recessed area as well. Something darker. The painting will "pop".

I like the idea of low-maintenance live plants.

Also, could you wallpaper the space and use it for display/bookshelves?

Oh, there are these mosaic tiles from bisazza that come on leaner panels. Some of them are really interesting and they come in a lot of different patterns and colours, with some light it might look great. It might be more interesting than regular art. Also, why are people still saying flat screen when it's unoriginal, and you said you didn't want one?

I had to deal with the same thing in my last place.
I wanted a beautiful mirror to hang over the fireplace so I bought one larger than the whole to cover it up. I know, I know...very predictable but it looked great. Then I used the "hole" for random storage.

make a light box, with the lights shining up then put some nice colored vases of all shapes. or a nice chandelier, or a vase with some nice twigs , glue little bulbs of some kind , (oriental like) , so many things, but definetly start with light.

Ok, now you have a lot of ideas. Send us an after picture!

Paint it out dark and add a white round mirror plus sea shells!

I suggested this to a friend of mine and am waiting to see the result:

Put two eye hooks midway between the front and back and hang your artwork using picture wire. Might give it an interesting look with the shadowing behind it.