With DOM you can do
$dom = new DOMDocument;
$dom->preserveWhiteSpace = FALSE;
$dom->loadXML('<root><foo><bar>baz</bar></foo></root>');
$dom->formatOutput = TRUE;
echo $dom->saveXML();
gives (live demo)
<?xml version="1.0"?>
<root>
<foo>
<bar>baz</bar>
</foo>
</root>
See DOMDocument::formatOutput
and DOMDocument::preserveWhiteSpace
properties description.