str = unicode(str, errors='replace')
str = unicode(str, errors='ignore')
Note: This will strip out (ignore) the characters in question returning the string without them.
For me this is ideal case since I'm using it as protection against non-ASCII input which is not allowed by my application.
Alternatively: Use the open method from the codecs module to read in the file:
with codecs.open(file_name, 'r', encoding='utf-8',
errors='ignore') as fdata: