Choose a focal point in the living room, and arrange your furniture around it. In most small spaces, this focal point will be your entertainment center or large screen television. Place this piece in the room first.
Arrange the rest of the living room furniture around your TV or entertainment center. Start with the next largest piece, usually the sofa or love seat. Place it directly opposite the focal point.
Place a chair at an angle to the sofa. This way the chair faces your focal point, but it also can be turned towards the sofa for conversation.
Place other chairs and small tables around the room. Putting chairs close to each other and close to the sofa will create conversation areas.
Be sure to make a pathway so people can walk freely through the room.