Wordpress - How to show a hierarchical terms list?

I realize, this is a very old question, but if you have a need to build up an actual structure of terms, this might be a useful method for you:

/**
 * Recursively sort an array of taxonomy terms hierarchically. Child categories will be
 * placed under a 'children' member of their parent term.
 * @param Array   $cats     taxonomy term objects to sort
 * @param Array   $into     result array to put them in
 * @param integer $parentId the current parent ID to put them in
 */
function sort_terms_hierarchically(Array &$cats, Array &$into, $parentId = 0)
{
    foreach ($cats as $i => $cat) {
        if ($cat->parent == $parentId) {
            $into[$cat->term_id] = $cat;
            unset($cats[$i]);
        }
    }

    foreach ($into as $topCat) {
        $topCat->children = array();
        sort_terms_hierarchically($cats, $topCat->children, $topCat->term_id);
    }
}

Usage is as follows:

$categories = get_terms('my_taxonomy_name', array('hide_empty' => false));
$categoryHierarchy = array();
sort_terms_hierarchically($categories, $categoryHierarchy);

var_dump($categoryHierarchy);

Use wp_list_categories with the 'taxonomy' => 'taxonomy' argument, it's built for creating hierarchical category lists but will also support using a custom taxonomy..

Codex Example:
Display terms in a custom taxonomy

If the list comes back looking flat, it's possible you just need a little CSS to add padding to the lists, so you can see their hierarchical structure.

I dont know of any function that does what you want but you can build up something like this:

<ul>
    <?php $hiterms = get_terms("my_tax", array("orderby" => "slug", "parent" => 0)); ?>
    <?php foreach($hiterms as $key => $hiterm) : ?>
        <li>
            <?php echo $hiterm->name; ?>
            <?php $loterms = get_terms("my_tax", array("orderby" => "slug", "parent" => $hiterm->term_id)); ?>
            <?php if($loterms) : ?>
                <ul>
                    <?php foreach($loterms as $key => $loterm) : ?>
                        <li><?php echo $loterm->name; ?></li>
                    <?php endforeach; ?>
                </ul>
            <?php endif; ?>
        </li>
    <?php endforeach; ?>
</ul>

I haven't tested this but you can see what I'm getting at. What the above code will do is give you only two levels

EDIT: ahh yes you can use wp_list_categories() to do what you after.