My husband and I just moved, and while we have much more space in our bungalow than in the apartment, the closets are considerably smaller. Previously, we had a walk-in closet with one four-foot rail for long garments, and two four-foot rails for short garments. There were shelves above each rail. In the center of the closet, we had two shoe racks, six shelves and two baskets. Our new closet has two rails less than three feet long that hold long garments, three double hooks in the center of the closet, and shelves above the rails.
Our first step was to make better use of our dresser. I removed from the closet any top that doesn't wrinkle and put it in a drawer. If you don't have a dresser, you can build one to suit your needs using the itso system from Target. I just bought one of their collapsible boxes to hold my old band tees, but I'm thinking of getting a few more boxes for packing jammies, and summer gear in. The current box is sitting on my shelf, making better use of the vertical space.
I also recommend hanging canvas cubes. I use mine to organize my sweaters, heavy scarves, dry cleaning. There's a shoe version too if you don't want a shoe rack.
After the dresser, we bought better hangers. My husband's pants are now all hanging on two hangers, but the cascading hangers worked better with my less bulky clothes. Again, focus on using your vertical space.
Make good use of your door. Hang a hat or shoe rack over it. Get some hinge rods for scarves. Just because it's a moving surface doesn't mean it can't be more useful.
Next, prepare to cycle with the seasons. With a small closet, you can't leave your clothes in sight all year. Summer clothes don't take up too much room, but my winter clothes will need to go somewhere in a few months. Vacuum bags or under-the-bed storage is the best option here. If the weather in your area is finicky or you think you might still wear something in May, go for the latter as it's easier to access.
Finally, put some things on display. Do you love to ski? Then put your jacket on display with some of your gear. Did you buy a cool tartan when you visited Scotland? Throw it over a chair like a blanket. Have a sweet vintage dress? Hang it on the wall. Clothing doesn't have to hide when it's not on your body.