Courtesy of TJ at devnet

function formatXmlString($xml) {

  // add marker linefeeds to aid the pretty-tokeniser (adds a linefeed between all tag-end boundaries)
  $xml = preg_replace('/(>)(<)(\/*)/', "$1\n$2$3", $xml);

  // now indent the tags
  $token      = strtok($xml, "\n");
  $result     = ''; // holds formatted version as it is built
  $pad        = 0; // initial indent
  $matches    = array(); // returns from preg_matches()

  // scan each line and adjust indent based on opening/closing tags
  while ($token !== false) :

    // test for the various tag states

    // 1. open and closing tags on same line - no change
    if (preg_match('/.+<\/\w[^>]*>$/', $token, $matches)) :
      $indent=0;
    // 2. closing tag - outdent now
    elseif (preg_match('/^<\/\w/', $token, $matches)) :
      $pad--;
    // 3. opening tag - don't pad this one, only subsequent tags
    elseif (preg_match('/^<\w[^>]*[^\/]>.*$/', $token, $matches)) :
      $indent=1;
    // 4. no indentation needed
    else :
      $indent = 0;
    endif;

    // pad the line with the required number of leading spaces
    $line    = str_pad($token, strlen($token)+$pad, ' ', STR_PAD_LEFT);
    $result .= $line . "\n"; // add to the cumulative result, with linefeed
    $token   = strtok("\n"); // get the next token
    $pad    += $indent; // update the pad size for subsequent lines
  endwhile;

  return $result;
}