We present the first high-resolution, soft-X-ray spectrum of the prototypical Seyfert 2 galaxy, NGC 1068. This spectrum was obtained with the XMM-Newton Reflection Grating Spectrometer. Emission lines from H-like and He-like low-Z ions (from C to Si) and Fe-L-shell ions dominate the spectrum. Strong, narrow radiative recombination continua (RRC) for several ions are also present, implying that most of the observed soft-X-ray emission arises in low-temperature (few eV) plasma. This plasma is photoionized by the inferred nuclear continuum (obscured along our line of sight), as in the unified model of active galactic nuclei (AGN). We find excess emission (compared with pure recombination) in all resonance lines (np to 1s) up to the photoelectric edge, demonstrating the importance of photoexcitation as well. We introduce a simple model of a cone of plasma irradiated by the nuclear continuum; the line emission we observe along our line of sight perpendicular to the cone is produced through recombination/radiative cascade following photoionization and radiative decay following photoexcitation. A remarkably good fit is obtained to the H-like/He-like ionic line series, with inferred radial ionic column densities consistent with recent observations of warm absorbers in Seyfert 1 galaxies. Previous Chandra imaging revealed a large (extending out to 500 pc) ionization cone containing most of the X-ray flux, implying that the warm absorber in NGC 1068 is a large-scale outflow. To explain the ionic column densities, a broad, flat distribution in the logarithm of the ionization parameter ($xi=L_X/n_e r^2$) is necessary, spanning $logxi=0$--3. This suggests either radially-stratified ionization zones or the existence of a broad density distribution (spanning a few orders of magnitude) at each radius.
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