If you don't rent your home, painting the paneling may offer you the solution with the most potential. It covers the wood, allowing you to bring color and light to your space. You can treat the paneling with plaster if you want to completely cover it up or to create a European look as you see in Mediterranean decorating styles. However, it's OK to just paint over the paneling; this look works if your goal is to lighten the look of the paneling by painting it white. Once painted, add decorative elements such as stenciling or a wallpaper border to create simple decorative accents on the paneling.
Wall coverings, such as a large tapestry or a full wall curtain, allow you to add a very colorful decorative element to your paneling, which is a good solution if painting is out of the question. For a more rustic look, seek out tapestries that feature pictures of pastoral scenes or wildlife. To bring a spot of color to the space, find a light-colored, almost sheer, curtain. Hang these items from curtain or tapestry rods. This option also allows you to introduce an interesting pattern to the wall if you select a curtain with a pattern that matches the rest of your decorative elements.
This solution provides a whimsical answer to the question of how to decorate your paneling. It provides you with the perfect backdrop for occasions like parties, because the flowers bring a bright, colorful element, but aren't permanent. Buy strings of silk flowers from a craft or floral shop. Make sure they're on the vine. Staple the vines of the flowers in the grooves of the paneling to make it look as if long strings of flowers are growing up your walls.
Mirrors make a room look larger as well as introduce more light to a space because of their reflective qualities. Break up the monotony of your paneled walls by sticking self-stick mirrors to the paneled walls. If you want it to look like the mirrors are framed by the wood, leave space between long rows of mirrors so you can see the paneling. For example, hang a vertical row of mirrors, leave about a foot of space and then hang another vertical row of mirrors. You can hang small pictures, pieces of art or decorative sconces on the paneling in between the mirrors for an extra decorative touch.