diff --git a/docs/docs/configuration/index.rst b/docs/docs/configuration/index.rst
index b98154f69..fc9f5d04f 100644
--- a/docs/docs/configuration/index.rst
+++ b/docs/docs/configuration/index.rst
@@ -12,6 +12,7 @@ Moto has a variety of ways to configure the mock behaviour.
 
   environment_variables
   recorder/index
+  prettify_responses
   state_transition/index
   state_transition/models
 
diff --git a/docs/docs/configuration/prettify_responses.rst b/docs/docs/configuration/prettify_responses.rst
new file mode 100644
index 000000000..e592a380a
--- /dev/null
+++ b/docs/docs/configuration/prettify_responses.rst
@@ -0,0 +1,38 @@
+.. _prettify_responses_page:
+
+.. role:: raw-html(raw)
+    :format: html
+
+=============================
+Prettify responses
+=============================
+
+This option allows to prettify responses from moto. Pretty responses are more readable (eg. for debugging purposes). 
+It also makes moto better in mocking AWS as AWS returns prettified responses.
+
+Ugly output:
+
+.. sourcecode:: python
+
+    <DeleteLaunchTemplatesResponse xmlns="http://ec2.amazonaws.com/doc/2016-11-15/"><requestId>178936da-50ad-4d58-8871-22d9979e8658example</requestId><launchTemplate><defaultVersionNumber>1</defaultVersionNumber><launchTemplateId>lt-d920e32b0cccd6adb</launchTemplateId><launchTemplateName>example-name</launchTemplateName></launchTemplate></DeleteLaunchTemplatesResponse>
+
+Prettified output:
+
+.. sourcecode:: python
+
+    <DeleteLaunchTemplatesResponse xmlns="http://ec2.amazonaws.com/doc/2016-11-15/">
+        <requestId>178936da-50ad-4d58-8871-22d9979e8658example</requestId>
+        <launchTemplate>
+            <defaultVersionNumber>1</defaultVersionNumber>
+            <launchTemplateId>lt-d920e32b0cccd6adb</launchTemplateId>
+            <launchTemplateName>example-name</launchTemplateName>
+        </launchTemplate>
+    </DeleteLaunchTemplatesResponse>
+
+
+Configuration
+#################
+
+As changing responses can interfere with some external tools, it is disabled by default.
+If you want to enable it, use environment variable:
+`MOTO_PRETTIFY_RESPONSES=True`
\ No newline at end of file
diff --git a/moto/core/responses.py b/moto/core/responses.py
index ac47413a2..432d50b96 100644
--- a/moto/core/responses.py
+++ b/moto/core/responses.py
@@ -18,6 +18,8 @@ from jinja2 import Environment, DictLoader
 from typing import Dict, List, Union, Any, Optional
 from urllib.parse import parse_qs, parse_qsl, urlparse
 from werkzeug.exceptions import HTTPException
+from xml.dom.minidom import parseString as parseXML
+
 
 log = logging.getLogger(__name__)
 
@@ -104,10 +106,15 @@ class _TemplateEnvironmentMixin(object):
     def response_template(self, source):
         template_id = self._make_template_id(source)
         if not self.contains_template(template_id):
-            collapsed = re.sub(
-                self.RIGHT_PATTERN, ">", re.sub(self.LEFT_PATTERN, "<", source)
-            )
-            self.environment.loader.update({template_id: collapsed})
+            if settings.PRETTIFY_RESPONSES:
+                # pretty xml
+                xml = parseXML(source).toprettyxml()
+            else:
+                # collapsed xml
+                xml = re.sub(
+                    self.RIGHT_PATTERN, ">", re.sub(self.LEFT_PATTERN, "<", source)
+                )
+            self.environment.loader.update({template_id: xml})
         return self.environment.get_template(template_id)
 
 
diff --git a/moto/settings.py b/moto/settings.py
index 13e1b2a17..65ceaeb4d 100644
--- a/moto/settings.py
+++ b/moto/settings.py
@@ -29,6 +29,9 @@ ENABLE_KEYPAIR_VALIDATION = bool(
 ENABLE_AMI_VALIDATION = bool(os.environ.get("MOTO_ENABLE_AMI_VALIDATION", False))
 
 
+PRETTIFY_RESPONSES = bool(os.environ.get("MOTO_PRETTIFY_RESPONSES", False))
+
+
 def get_sf_execution_history_type():
     """
     Determines which execution history events `get_execution_history` returns
diff --git a/tests/test_core/test_responses.py b/tests/test_core/test_responses.py
index 5f4208486..728f6012d 100644
--- a/tests/test_core/test_responses.py
+++ b/tests/test_core/test_responses.py
@@ -1,3 +1,4 @@
+from unittest import SkipTest, mock
 import sure  # noqa # pylint: disable=unused-import
 
 from collections import OrderedDict
@@ -6,6 +7,7 @@ from botocore.awsrequest import AWSPreparedRequest
 
 from moto.core.responses import AWSServiceSpec, BaseResponse
 from moto.core.responses import flatten_json_request_body
+from moto import settings
 
 
 def test_flatten_json_request_body():
@@ -205,3 +207,21 @@ def test_response_environment_preserved_by_type():
     assert resp_a_new_instance.contains_template(
         BaseResponse._make_template_id(source_2)
     )
+
+
+@mock.patch(
+    "moto.core.responses.settings.PRETTIFY_RESPONSES",
+    new_callable=mock.PropertyMock(return_value=True),
+)
+def test_jinja_render_prettify(m_env_var):
+    if settings.TEST_SERVER_MODE:
+        raise SkipTest(
+            "It is not possible to set the environment variable in server mode"
+        )
+    response = BaseResponse()
+    TEMPLATE = """<TestTemplate><ResponseText>Test text</ResponseText></TestTemplate>"""
+    expected_output = '<?xml version="1.0" ?>\n<TestTemplate>\n\t<ResponseText>Test text</ResponseText>\n</TestTemplate>'
+    template = response.response_template(TEMPLATE)
+    xml_string = template.render()
+    assert xml_string == expected_output
+    assert m_env_var