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Nucleic acids are among the most versatile molecules for the construction of biomimetic systems because they can serve as information carriers and programmable construction materials. How nucleic acids interact with coacervate compartments that consist of a lipid sponge phase is not known. Here we systematically characterize the potential of DNA to functionalize lipid sponge droplets and demonstrate a strong size dependence for sequestration into the sponge phase. Double stranded DNA molecules of more than 300 bp are excluded and form a corona on the surface of droplets they are targeted to. Shorter DNA molecules partition efficiently into the lipid sponge phase and can direct DNA‐templated reactions to droplets. We demonstrate repeated capture and release of labeled DNA strands by dynamic hybridization and strand displacement reactions that occur inside droplets. Our system opens new opportunities for DNA‐encoded functions in lipid sponge droplets such as cargo control and signaling.