Nickname capitalization is a permanent topic of debate. To lowercase or to capitalize, that is the question.
Chicago Manual of Style Edition 18 (CMOS 18) has some advice on the matter, but it can leave a few questions remaining.
Here are some guidelines as to whether your characters’ nicknames should be lowercase or capitalized.
Roles & occupations
If your character’s role or occupation is being used in place of their name, it should be capitalized. CMOS 18 confirms this in section 8.31, “Descriptive Titles.”
For example:
“Your wish is my command, Princess.”
—This capitalization indicates to the reader that the character actually is a princess and holds that royal title. If the character is not a princess, and this is a general nickname, it would be lowercase because it’s an informal nickname (see below).
“Will he live, Doctor?”
—The character is a doctor in this case. Not the same as “What’s up, doc?”
Informal nicknames
Sweetie, cutie, honey, doll, darling, and the like are not capitalized. They’re informal nicknames that are terms of endearment. If you look them up in Merriam-Webster, you’ll find they agree.
Description-based nicknames
These are also informal and require no capitalization. For example:
“What are you up to, blondie?”
—This is a description of what the person looks like using a noun. Of note is that it’s not a proper noun.
“That’s so cute, little one!”
—Again, this is a sweet form of description, nothing formal.
Permanent nicknames
However (because there always must be an exception), if a character chooses to be permanently known by their nickname to everyone they meet, that becomes the replacement for their name.
“Please, call me Jazzy.”
—Whether or not this is a shortened version of the character’s name, it’s the official replacement for their name that everyone should use. Therefore it’s a formal use and should be capitalized.