Is 'is that' correct?

It's optional.

Thanks, jespah
What do you mean by it's optional?

The sentence makes the same amount of sense with, or without it.

The word 'that' can sometimes be a kind of padding word, and here's where that's (heh) happening.

I know that you're right.
I know you're right.
These 2^ sentences mean the same thing. In this case, the word 'that' is just so much extraneous noise. Leave it in or take it out -- it doesn't matter.

She saw that he was short.
She saw he was short.

The first time that I met you, you were mean to me.
The first time I met you, you were mean to me.

I wish that I could go to Spain.
I wish I could go to Spain.

In every single one of these sentence pairs, the sense is identical whether you use the word 'that', or not.

This doesn't mean the word 'that' is useless, though. It's often part of an idiomatic phrase.

This boy is nice, but that boy isn't.
In this ^ instance, the word 'that' is necessary for the sentence to make sense, as it connotes an alternative (and may be an alternative which is slightly more physically remote from the speaker).

She was a girl that was born in 2005.
This ^ is an awkward sentence. It's technically grammatically correct, but it's not well put together. Here's a better way to say the same thing:
She was born in 2005.
One of the girls born in 2005 was her (this one is also awkward, but not as bad as the original).

I hope that this helps!

An English teacher was analyzing some papers which had been turned in by his students. He was discussing just the sort of padding that jespah was talking about. The usage was questionable in one of the papers and he told the class that that "that" that that student used was unnecessary.

Thanks, jespah, for the detailed clear reply.

That's a good one!