Mine is in a bedroom on our main level - there are just the two of us in the house, and when guests come to visit, they sleep in the lower level,so we decided a sewing room would be a good use. The laundry room is in there, and instead of a "regular" closet, we put shelves in for yarn/fabric/misc. storage.
I also have a large space in the lower level family room (which isn't used as such) for my longarm and all the stuff I have that goes along with that.
DH finally decided he needed to claim some space for himself and created a "man cave" in one of the bedrooms in the lower level. That meant I had to find a new storage place for batting, etc. I think he was telling me that I really didn't need to take over three rooms in the house!