Get some of those square mesh baskets that slide like drawers into a rack - good ventilation, mobility (they're often on wheels) and you can find them cheap at Wal-Mart, etc.

When I was looking at homes, one adorable place had a very tiny bath. The had added glass shelves above bath the door, wall to wall, for towels. The glass seemed to keep the room open, but wood painted the same as walls would work easily too.

Baskets are a good idea, hadn't thought about the ventialation Lucy. My cleaning rags are in a large one on top of the stacked W/D. Since this is so high I ran a ribbon through one side and grab it to pull forward. Could be done on a high shelf in bath too if you don't want to see the towels.

Although I have a linen closet it is used for other needs. An extra sheet set for each bedroom is stacked on the upper shelf in their respective closets. For me it seems like most items stacked there are items not used a lot and a set of sheets doesn't take up much room. An extra upper shelf can also be added to most closets.

When we didn't have a linen closet or space for an extra dresser I kept the linens in underbed boxes. Because I was hard up for cash, I used the plain cardboard ones and they worked just fine.

Our linens currently occupy a dresser that is serving double duty in our bedroom as a tv stand. Line your dresser drawers to keep out the "old wood" smell. (I don't think very many people do that anymore.) Some people like the scented ones but I think they are always too strong and too artificial - wallpaper (which can often be found free or dirt cheap), butcher/freezer paper, or contact paper (the "peelable" sort that will come off without leaving sticky junk) works just fine. If pockets are deeper there are shelf/drawer liners made of real cedar veneer that are nice too. My elderly relatives stored their bar soaps in the linen drawers to keep things smelling nice and because they thought aging the soap hardened it and made it last longer. (That is true for real soap based on lye and oil/fat, but not the detergent bars that pass for soap most of the time these days. But who even uses bar soap anymore? It's all liquids and gels these days.) In times past sachets were always little girls' first sewing projects. At any health-food store these days you can get muslin drawstring "tea bags" which you can fill with the lavender flowers, bay leaves, chamomile, cloves, whatever purchased at the same place. (Of course you can put the same stuff in a piece of old nylon hose or a fine-knit sock like a baby sock, but the muslin bag is much prettier and costs maybe fifty cents.) Throwing one of these bags of lavender flowers into the dryer blows ANY commercial dryer sheet right out of the water - you just have to make sure it is tied tight. I make these for holiday gifts and they always go over wonderfully, perhaps because the fancy-pants "boo-teeks" ;-) have started carrying them for upwards of three dollars apiece! (They cost me about 25 cents to make, since I can get the makings from a wholesaler who will sell to the public.) Cedar blocks are nice but they have to be sanded every so often to refresh the scent.

Towels - how about one of these hotel-style wall-mounted towel holders? They are fabulous for fitting a lot of towels into a very small space in the bathroom. For towels that must be hung up flat (like if they're "in rotation"), here's a site with several hinge-mounted towel racks that hide four to six towels behind the door. The "Duo" shower curtain rod and towel bar is also pretty cool, looks a little nicer than just draping the towels over the shower curtain rod.

We have a linen closet outside of each of the two bathrooms...I've thought about removing them and adding the space to the bathrooms, but the linen closets are full of blankets, sheets, towels, etc. which would have to go somewhere, and I don't know where that would be at the moment.

-Roger

First we decluttered to where we only had 2 sets of sheets for each bed (plus some extra pillows and pillowcases for my daughter's sleepover guests). One set went on the bed and the extra set went, like emagineer, on the top shelf in the closet of that bedroom. Same with blankets, pillows -- anything for a particular bed went in that bedroom's closet. Tablecloths/placemats/napkins were stored in the dining area. (That's a standard theme in organizational books -- store items near the point of use.) For towels, we added a linen tower in the bathroom. In another house we used one of those racks that fit over the commode. I'll try to attach a link.

Here is a link that might be useful: bathroom space saver

I do have a linen closet in my tiny home (940 sq. ft) but, I have to use some of it for dish and crystal storage. But, since it is only me there now I don't need as much towel and sheet storage as other people with families do.

Like Piper1014 said using a rack or space saver would be nice for storing towels and such over the toliet, since that is often wasted space.

Also something useful, you can buy a round table (cheap) with the storage attached underneath it in Walmarts, Bed Bath, beyond, Kmart etc. That way in each bedroom you would have an endtable and could store the sheets in the lower cubbies of that table, (all hidden) by a 70" tablecloth in the color you choose to match your decor. Again, these 70" table cloths are easily and inexpensively found in most dept stores.

One of the best space savers is the Captain's Bed, it has drawers underneath. Great for storing clothes, blankets, sheets. Usually, not to expensive and a foam mattress is all it requires. Great for the back.

Many stores that specialize in home furniture like Crate and Barrel have wonderful units to put in a bathroom for towels.

There is a "cupboard" in my tiny bathroom that holds towels, cosmetics, toiletries, hair dryer, etc. Then I have a blanket chest (antique) in my bedroom that holds my sheets, sweaters, etc. I also store my nice bath soaps in between my sheets - makes them smell so nice.

As it is just me, I plan to pare down my sets of sheets to maybe just three sets. I don't think I need more than that at any one time, and I could use some extra storage for out-of-season clothes.