I think she was either sacrificed in Zuko's place, or more logically she went into hiding.

I think she may even be a member of the White Lotus.

I copy/pasted this post from another thread, so it may look familiar but probably not.

The episode Zuko Alone always confused me. But after some thought, here's the conclusion I came up with, using what the characters ACTUALLY said as proof:

Azula: Dad's going to killll you.... Really, he is.

This is the one time when Azula was not lying. I believe that Ozai would kill his own son for the title of Fire Lord, he didn't like Zuko much anyway. Ursa comes in and asks what Azula is talking about, and Azula tells her. Ursa believes her.

Ursa: Zuko, my love, everything I've done, I've done to protect you.

Ursa killed Azulon, giving Ozai no reason to kill Zuko, and making him Fire Lord. Since Azulon was a "picture of health" or whatever they said, someone might suspect he died prematurely. That's why Ursa was forced to flee.

That's my theory anyway. It kind of bugs me that they didn't clearly explain it.

hmm....i've been under the assumption that she was dead for sure. if she's alive, i thikn that would take something away from zuko's character, though that may just be the zutara shipper in me talking....

i like the idea of her killing azulon to save zuko, and it certainly fits plot-wise, but all indications seem to point to her being dead. at least that's how i see it.