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{We present spatially resolved Chandra HETGS observations of the Seyfert 2 galaxy NGC 1068. X-ray imaging and high resolution spectroscopy are used to test the Seyfert unification theory. Fe Kalpha emission is concentrated in the nuclear region, as are neutral and ionized continuum reflection. This is consistent with reprocessing of emission from a luminous, hidden X-ray source by the obscuring molecular torus and X-ray narrow-line region (NLR). We detect extended hard X-ray emission surrounding the X-ray peak in the nuclear region, which may come from the outer portion of the torus. Detailed modeling of the spectrum of the X-ray NLR confirms that it is excited by photoionization and photoexcitation from the hidden X-ray source. K-shell emission lines from a large range of ionization states of H-like and He-like N, O, Ne, Mg, Al, Si, S, and Fe Xvii-XXIV L-shell emission lines are modeled. The emission measure distribution indicates roughly equal masses at all observed ionization levels in the range log xi = 1-3. We separately analyze the spectrum of an off-nuclear cloud. We find that it has a lower column density than the nuclear region, and is also photoionized. The nuclear X-ray NLR column density, optical depth, outflow velocity, and electron temperature are all consistent with values predicted by optical spectropolarimetry for the region which provides a scattered view of the hidden Seyfert 1 nucleus. }