File

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Two questions regarding GnuCash data files arise again and again:

1. Where is the GnuCash file?

As with any application that allows users to create information and save it, GnuCash saves your data in a file that uses the name and folder that you choose in the Save as... dialog. To this file name is usually added the ".gnucash" file extension. So, if you enter "/home/myself/foobar" in the "Save as..." dialog window, the file will be written as "/home/myself/foobar.gnucash".
Note that, in addition to the original "foobar.gnucash" file, GnuCash will also save backup files and log files. See What are all these .gnucash and .log files filling up my directory for more information.
Before GnuCash 2.4, the default file name extension was .xac and it was optional. If you didn't specify it in your file name the GnuCash file would simply have not extension. The backup files would still have .xac as extension.

2. How can I edit the XML file?

The default file format is XML, but it is stored by default in compressed form (i.e., compressed by the program gzip).
This is switched on or off according to the preference setting in Edit->Preferences->General where you can set or unset the checkmark at File compression. By default it is activated.
In order to view your data in a text editor, you need to expand the compressed XML data, either by changing the preference or by uncompressing the data file using the tool available on your operating system.
It is strongly recommended that you have backups of your file before opening the source XML.
Once you have edited and saved the file, you don't have to gzip it yourself; GnuCash will do this upon the next save if set in preferences.