a .tar.gz file is tarred and then gzipped, so you have to use both programs.
The easiest way is to get tar to run gunzip itself.
eg $tar xvfz foo.tar.gz
x = extract files
v = verbose (say what it doing)
f = unzip a file
z = pipe it through gunzip
(they can be in any order)
there has been a discussion on it here:
hope this helps