The organization of nanoparticles in constrained geometries is an area of fundamental and practical importance. Spherical confinement of nanocolloids leads to new modes of packing, self-assembly, phase separation and relaxation of colloidal liquids; however, it remains an unexplored area of research for colloidal liquid crystals. Here we report the organization of cholesteric liquid crystal formed by nanorods in spherical droplets. For cholesteric suspensions of cellulose nanocrystals, with progressive confinement, we observe phase separation into a micrometer-size isotropic droplet core and a cholesteric shell formed by concentric nanocrystal layers. Further confinement results in a transition to a bipolar planar cholesteric morphology. The distribution of polymer, metal, carbon or metal oxide nanoparticles in the droplets is governed by the nanoparticle size and yields cholesteric droplets exhibiting fluorescence, plasmonic properties and magnetic actuation. This work advances our understanding of how the interplay of order, confinement and topological defects affects the morphology of soft matter.