We present optical and near-infrared follow-up observations of the X-Ray Flash ( XRF ) of July 23 2003 . Our observations in the R-band cover the temporal range from 4.2 h to 64 days after the high energy event . We also present the results of multicolor imaging extending to the K-band on three epochs . The light curve of the R-band afterglow the first week after the burst is similar to the light curve for long duration Gamma-Ray Bursts ( GRBs ) , i.e. , a broken power-law with a late time slope of \alpha \approx 2.0 ( F _ { \nu } \propto t ^ { - \alpha } ) . Furthermore , the spectral energy distribution ( SED ) has a power-law ( F _ { \nu } \propto \nu ^ { - \beta } ) shape with slope { \beta } \approx 1.0 . However , the decay slope at t < 1 day is shallow , consistent with zero . This is in qualitative agreement with the prediction that XRFs are off-axis classical GRBs . After the first week there is a strong bump in the light curve , which peaks at around 16 days . The SED after the peak becomes significantly redder . We discuss the possible interpretations of this bump , and conclude that an underlying supernova is the most likely explanation since no other model appears consistent with the evolution of the SED . Finally , we present deep spectroscopy of the burst both in the afterglow and in the bump phase . A firm upper limit of z = 2.3 is placed on the redshift of XRF 030723 from the lack of Ly \alpha forest lines in the spectrum of the afterglow . The lack of significant absorption and emission lines in either of the two spectra excludes a spectroscopic redshift determination .