/**
 * Return rendered taxonomy tree
 */
function mymodule_taxonomy_tree($vocabulary_name) {
  $vid = taxonomy_vocabulary_machine_name_load($vocabulary_name)->vid;
  $terms = taxonomy_get_tree($vid);
  return theme('item_list', array('items' => _mymodule_taxonomy_tree($terms)));
}
 
/**
 * Helper for mymodule_taxonomy_tree()
 */
function _mymodule_taxonomy_tree($terms, $parent = 0) {
  $items = array();
 
  foreach ($terms as $term) {
    if (in_array($parent, $term->parents)) {
      $items[] = array(
        'data' => $term->name,
        'children' => _mymodule_taxonomy_tree($terms, $term->tid),
      );
    }
  }
 
  return $items;
}

echo mymodule_taxonomy_tree('tags');

Drupal 7