Using LiveData with Data Binding

The Android Studio 3.1 (currently in Canary 6) will fix this issue, since LiveData can be used as observable field:

Updates to Data Binding:

You can now use a LiveData object as an observable field in data binding expressions. The ViewDataBinding class now includes a new setLifecycle method that you need to use to use to observe LiveData objects.

Source: Android Studio 3.1 Canary 6 is now available

The accepted answer does not give an example. So here's one I've tested and it works.

In layout:

<layout>
    <data>
        <variable
            name="viewmodel"
            type="com.abc.xyz.viewmodels.MyViewModel"/>
    </data>

    ...

    <TextView
        android:layout_width="wrap_content"
        android:layout_height="wrap_content"
        android:text='@{viewmodel.myString}'
        ...
     />

    ...

</layout>

In fragment:

override fun onCreateView(inflater: LayoutInflater, 
         container: ViewGroup?, savedInstanceState: Bundle?): View? {
        val binding: FragmentAlbumBinding = DataBindingUtil.inflate(
            inflater, R.layout.fragment_album, container, false)
        binding.apply {
            fragment = this
            viewModel = albumViewModel
            lifecycleOwner = this
    }
}

For androidx will be:

androidx.lifecycle.MutableLiveData

<layout>
    <data>
        <variable
            name="myString"
            type="androidx.lifecycle.MutableLiveData&lt;String&gt;"/>
    </data>

    ...

    <TextView
        android:layout_width="wrap_content"
        android:layout_height="wrap_content"
        android:text='@{myString}'
        ...
     />

    ...

</layout>

And for Kotlin:

  val myStr = MutableLiveData<String>()

...

 binding.apply {
            setLifecycleOwner(this)
            this.myString = myStr
        }

Good luck! :)

For those who came across this question looking for an example like I did, here's one:

In layout .xml put the LiveData element with it's type:

<layout>
    <data>
        <variable
            name="myString"
            type="android.arch.lifecycle.MutableLiveData&lt;String&gt;"/>
    </data>

    ...

    <TextView
        android:layout_width="wrap_content"
        android:layout_height="wrap_content"
        android:text='@{myString}'
        ...
     />

    ...

</layout>

In your code set it's value and the lifecycle owner:

MutableLiveData<String> myString = new MutableLiveData<>();

...

binding.setLifecycleOwner(this);
binding.setMyString(myString);

That's it :)

Note that the default value of LiveData elements is null so assign initial values to make sure you get the desired effect right away or use this to enforce nullability.

EDIT: Use androidx.lifecycle.MutableLiveData<String> as type if you use androidx.