Instead of trying to read the file in one go and then process it, you want to read it in chunks and process each chunk as it's loaded. This is a fairly common situation when processing large XML files and is covered by the Simple API for XML (SAX) standard, which specifies a callback API for parsing XML streams - it's part of the Python standard library under xml.sax.parse and xml.etree.ETree as mentioned above.

Here's a quick XML to JSON converter:

from collections import defaultdict
import json
import xml.etree.ElementTree as ET

def parse_xml(file_name):
    events = ("start", "end")
    context = ET.iterparse(file_name, events=events)

    return pt(context)

def pt(context, cur_elem=None):
    items = defaultdict(list)

    if cur_elem:
        items.update(cur_elem.attrib)

    text = ""

    for action, elem in context:
        # print("{0:>6} : {1:20} {2:20} '{3}'".format(action, elem.tag, elem.attrib, str(elem.text).strip()))

        if action == "start":
            items[elem.tag].append(pt(context, elem))
        elif action == "end":
            text = elem.text.strip() if elem.text else ""
            elem.clear()
            break

    if len(items) == 0:
        return text

    return { k: v[0] if len(v) == 1 else v for k, v in items.items() }

if __name__ == "__main__":
    json_data = parse_xml("large.xml")
    print(json.dumps(json_data, indent=2))

If you're looking at a lot of XML processing check out the lxml library, it's got a ton of useful stuff over and above the standard modules, while also being much easier to use.

http://lxml.de/tutorial.html

Huge files always require using XmlReader. I use a combination of XmlReader and Xml Linq in code below

using System;
using System.Collections.Generic;
using System.Linq;
using System.Text;
using System.Xml;
using System.Xml.Linq;

namespace ConsoleApplication120
{
    class Program
    {
        const string FILENAME = @"c:\temp\test.xml";
        static void Main(string[] args)
        {
            List<Dictionary<string, string>> items = new List<Dictionary<string, string>>();
            XmlReader reader = XmlReader.Create(FILENAME);

            reader.ReadToFollowing("hugeArray");

            while (!reader.EOF)
            {
                if (reader.Name != "item")
                {
                    reader.ReadToFollowing("item");
                }
                if (!reader.EOF)
                {
                    XElement item = (XElement)XElement.ReadFrom(reader);
                    Dictionary<string, string> dict = item.Elements()
                        .GroupBy(x => x.Name.LocalName, y => (string)y)
                        .ToDictionary(x => x.Key, y => y.FirstOrDefault());

                    items.Add(dict);
                }
            }
        }
    }


}