From the picture you've posted it seems to me that the real problem is the plumbing of the pipes to the towel rail that needs to be sorted out.
You'll probably have to cut a bigger hole in the wall to do this anyway, so what I'd do is mark a squared off rectangle that has it's vertical edges on the studs. Use a sharp knife and a metal straight edge to cut the plasterboard (drywall) back to this rectangle.
Sort out (or get a plumber to sort out) the pipe work so that it looks less ugly and uses metal (probably chromed) pipes where it's visible.
Then get a new sheet of plasterboard and cut it to fit the hole - again using a metal straight edge to get a good line. You don't have to cut all the way through the sheet in one go. Use the knife to score through the paper and a few millimetres into the plaster then give the board a sharp tap. This will break the rest of the plaster along the line you've scored. You can then use the knife on the other side to score through paper and complete the cut.
Screw this into the hole and fill the gaps with a sandable filler (unless you have a lot of experience plastering you'll struggle to get a perfect finish just by smoothing the filler).
It doesn't look like the existing wall is skimmed - so it's difficult to say what you should do as a final finish.