This is surprisingly easy. Watch the tutorials below. There is a part 1.. where I go over the basic first steps. Including tracing the shape out of Styrofoam
cutting the wall with a sawsall or jig saw. Taking the drywall and covering the back and floor of shape. Then taking a strip of drywall in an arched shape, making slits along the curve so it can be gently nailed against the upper arched shape.
The second part 2 video details how to use mud, spray texture, and paint to finalize the look. Its sooooo fun to decorate the niche wall.