Microorganisms navigating through narrow spaces encounter significant hydrodynamic challenges. To overcome these constraints and sustain efficient motion, they employ adaptive strategies, including adaptive oscillatory body deformations. While artificial microdroplets can traverse channels narrower than their diameter, studies of their locomotion have thus far been largely restricted to steady-shape regimes. In this work, we demonstrate a transition from steady shape to dynamic interfacial undulations in 5CB (4-cyano-4′-pentylbiphenyl) droplets within aqueous tetradecyltrimethylammonium bromide (TTAB) solutions. We show that while droplets in dilute, additive-free solutions maintain a steady shape, the introduction of solutes or higher surfactant concentrations triggers pronounced interfacial undulations. Notably, both steady and undulating droplets exhibit a comparable velocity dependence on the confinement ratio—characterized by an initial deceleration followed by saturation—governed by the competition between hydrodynamic resistance and phoretic flow within the lubrication film. Furthermore, we find that increased surfactant concentration increases the Capillary number, resulting in a thicker lubrication layer that facilitates a symmetry-breaking transition. Upon varying confinement, the droplet interface shifts from bilateral undulations to being localized on one side, traveling-wave mode strongly coupled to flow field fluctuations at the droplet’s anterior. Linear stability analysis identifies the Yih–Marangoni instability as the underlying mechanism for these oscillations, revealing a previously unrecognized mode of adaptive locomotion in confined active matter.