KL Dra is a helium-accreting AM CVn binary system with an orbital period close to 25 min. Approximately every 60 d there is a 4-mag optical outburst lasting ∼10 d. We present the most sensitive X-ray observations made of an AM CVn system during an outburst cycle. A series of eight observations were made using XMM–Newton which started shortly after the onset of an optical outburst. We find that X-rays are suppressed during the optical outburst. There is some evidence for a spectral evolution of the X-ray spectrum during the course of the outburst. A periodic modulation is seen in the ultraviolet data at three epochs – this is a signature of the binary orbital or the superhump period. The temperature of the X-ray-emitting plasma is cooler compared to dwarf novae, which may suggest that a wind is the origin of a significant fraction of the X-ray flux.