XZ Tauri is a M3 V T Tauri star with a pre-main-sequence binary companion detected by infrared speckle interferometry at a projected separation of 0.3" (about 40 AU). Previous ground-based observations of the system have shown bipolar emission nebulosity, including a possible jet knot. Images obtained with the Wide Field and Planetary Camera 2 on the Hubble Space Telescope show an elongated, filled bubble of emission nebulosity extending over 4" to the north of the system which contains two or three compact knots. The source of the nebulosity is undetermined. For the first time, the components are separated in visible light, and the southern component (XZ Tau S) dominates the integrated light of the system. The reverse has been found to be true in the near-infrared. Thus we confirm that XZ Tauri belongs to the small class of young binaries with cool infrared companions.