Frankly, I would first paint the wall the same color as the other walls. That strong color is not doing your room any favors and is very limiting. After the repaint, I would treat the entire wall as a gallery wall, possibly using the mirror as the centerpiece. You could separate and frame the photos of your children, use any art that you have that you really love and, if your children have created pictures, frame those and use them. That would introduce some color that your space badly needs to take it out of the gray doldrums. Children's art often has great creative impact, and I imagine they'd love to see their work respected and hung on the wall in frames.

I put a large piece of statement art over the sofa. I'd want something tall between the two areas as a visual separator. I'd probably do a bookcase, 'cause that's me (three seems old enough to teach not to make a mess of it, and you could bolt it to the wall for safety). But even a floor lamp next to the "L" of the sectional could add visual interest.

Is there any other way all that furniture can be rearranged? Right now it's like a row of "stuff" all lined up against the wall & all about the same height. Perhaps with some furniture repositioning, you might see a better way of breaking up that long wall into smaller units that are easier for art placement. I agree the wall color needs changing. Maybe you can put the floor lamp on the other side of the couch. Move the couch towards the desk area. Buy an end table to place to the right of the couch & put a lamp on it. The floor lamp & table lamp will add needed height so everything doesn't look like it's lined up & at equal height. Once the couch is in the right position, get a large piece of art centered above it OR do as suggested above...use your current mirror & expand on it with a gallery wall.

I agree with the other post about painting the room all one color. If you want to incorporate color I would suggest putting down a large colorful rug under the sectional (on top of the existing carpet) to better define the living room area and adding throw pillows to pull more color in. You also need some end tables by the sectional with lamps. You want to bring the eye downward, not draw attention to the vaulted ceiling. I also agree with the other post about doing a gallery wall with pictures. If I may make another suggestion, I would strongly recommend swapping out the dining room fixture for something more minimalist that better represents the mid-century Scandinavian vibe you seem to have going. I think the right fixture could make a big impact.

You need to show all four walls to get the best suggestions. You need to tell what the room is usef for. Is it your one and only living room? A family room. Will you watch TV there? Entertain. We don't have enough information.

Good design happens when everything relates: furniture, paint, furniture finishes, layout, are. I agree that the statement wall doesn't work at all with your gray sofa. It's just a nice color that doesn't in any way enhance the room. Also, why is everything line up against the wall? Problems with rooms are often due to layout, not colors. Show us more!

Thanks so much everything here - all great feedback (and, cawaps - fantastic rendering and great idea with the floor lamp / mirror and piece above the sectional)! To answer some of the questions:

This is level 2 of a split-level home. More pictures below will give more context on this. To the left of the first photo is like a half-wall that separates this space from the kitchen. It's kind of a living room, lots of running around and playing, lounging and reading books, socializing when guests are over. But the bottom level of our house (just 5 steps lower, which you can see down into from this space and from the kitchen) is where our TV, record player, etc. are

Here is a photo from the same angle but much further back, as far as I can tuck myself into the corner (the front door to our house is right next to me on the right as I take this). You can see we started doing a gallery time thing on the half-wall between here and the kitchen, but kind of abandoned ship when we decided we should probably decide what to do with the bigger wall first.

Here is another view that shows how the half-wall separates the kitchen and this other area. What we'd really love is to open up the half-wall and wall where the oven is but we just spend a ton on building a mudroom, and remodeling a guest room and 3 bathrooms. Kitchen will have to wait. Also, you can't see in the photo, but there is a space between the half-wall and the oven wall that opens up into the kids' art area:

Your living area still needs some finishing touches. If you ignore the living area and jump right into decorating the huge wall the room will look off-balance.

I would consider putting the long bench on the short wall under the art. Pull your couch out of the corner and off the wall a bit. Then push all the furniture closer together. Right now all your furniture looks like strangers in an elevator.

You could float the small bookcase between the chairs or put it on the cream wall next to one of the chairs and put a lamp on it.

Have you tried the sectional in another spot? Maybe where the 2 chairs are? TV in this room - I don't see one.

Not a pro.

Wanting to create your space with your children in mind sounds good to me. This may sound odd but -- you might consider bicycles ... art, after all, does not need to be framed pictures.

Locate a couple of bicycles of a size your children will eventually "grow into" -- perhaps good used ones from a thrift store (that work) -- and you could paint them your children's favorite colors and hang them on the wall. You could pick two more for each of you, painted in your favorite bold colors, and hang them on the wall as well.

Like that color and would be loathe to cover it but, if you're stuck for other ideas, you might consider a mural or a large faux window w/poster of your favorite outdoor scene -- beach or woods or mountains or garden or field ... whatever appeals to your family.

You might also consider pressed metal wall art. If you like music, you could focus on that theme:

https://www.ebay.com/itm/164052298799

https://www.ebay.com/itm/TrebleClef-Black-Musical-Note-Music-Metal-Wall-Art-Decor/153839029144?_trkparms=aid%3D1110001%26algo%3DSPLICE.SIM%26ao%3D1%26asc%3D225085%26meid%3Dd4be207d83a54d30b922d5c0faa0c77d%26pid%3D100623%26rk%3D1%26rkt%3D6%26sd%3D153580763612%26itm%3D153839029144%26pmt%3D1%26noa%3D1%26pg%3D2047675&_trksid=p2047675.c100623.m-1

https://www.ebay.com/itm/MUSIC-MUSICAL-SMALL-VERSION-WOOD-HEART-NOTES-TREBLE-CLEF-WALL-ART-DECOR/333137467780?_trkparms=aid%3D1110001%26algo%3DSPLICE.SIM%26ao%3D1%26asc%3D225085%26meid%3D3bd6740fe0b540afb31fdbe05a838fa1%26pid%3D100005%26rk%3D5%26rkt%3D12%26mehot%3Dpf%26sd%3D153839029144%26itm%3D333137467780%26pmt%3D0%26noa%3D1%26pg%3D2047675&_trksid=p2047675.c100005.m1851

You could also add wood related items, including an actual guitar or any musical instrument or even music related art made from wood.

https://www.ebay.com/itm/Sing-Word-With-Treble-Clef-Laser-Cut-Wood-Wall-Art-Decor-Music/333342757798?_trkparms=aid%3D1110001%26algo%3DSPLICE.SIM%26ao%3D1%26asc%3D225085%26meid%3D5bc81f7047ee44c59138591ae6535dfd%26pid%3D100005%26rk%3D6%26rkt%3D12%26mehot%3Dpf%26sd%3D333137467780%26itm%3D333342757798%26pmt%3D0%26noa%3D1%26pg%3D2047675&_trksid=p2047675.c100005.m1851

Or add pictures or posters (framed or unframed), even abstract art with that same theme.

https://www.bing.com/shop?q=pressed+metal+wall+art+music+&FORM=SHOPPA&originIGUID=A06FB88FF1364E6A9BB53EE23FB0BD95 

You could choose the beach or the mountains or race cars or sports or even outer space as your theme. What interests your family?

For a three year old and a five year old, you might consider adding a toy storage piece for each of them. That could be a well built cedar chest that could become a family heirloom. That could include a pair of elongated storage ottomans that would be great for extra seating and (for the children) lounging or even napping. One thing to remember about such items, however, is to make sure they have a "safe" lid -- one that will not slam shut on tiny fingers.

https://www.bedbathandbeyond.com/store/product/simpli-home-trade-faux-leather-upholstered-ottoman/5042515?skuId=64230566&utm_campaignid=71700000040081466&utm_adgroupid=58700004310381854&targetid=92700036158503580&mrkgcl=609&mrkgadid=3279114881&utm_source=bingpla&utm_medium=cpc&utm_term=ProductType2%3Dliving%2520room%2520furnitureProductType3%3Dottomans%2520%26%2520benches&enginename=bing&mcid=PS_bingpla_nonbrand_furniture_&msclkid=9a770f5bcfe11f87329a510e17fc0da7&creative=78615137682353&device=c&matchtype=e&gclid=CMKL-pyW7ucCFVUBgQodaPYMBQ&gclsrc=ds

Thank you so much, everyone, for all the great ideas and advice. I'll post an after picture, but knowing us and our family's schedule, it may be awhile :) I love all the excellent food for thought here, though, and this will definitely help guide us.

Because you have a large room and small children, you might consider setting aside a section for play with a sofa or even a cabinet for their toys as a room divider. Good luck on your project.