python modify item in list, save back in list

You need to use the enumerate function: python docs

for place, item in enumerate(list):
    if "foo" in item:
        item = replace_all(item, replaceDictionary)
        list[place] = item
        print item

Also, it's a bad idea to use the word list as a variable, due to it being a reserved word in python.

Since you had problems with enumerate, an alternative from the itertools library:

for place, item in itertools.zip(itertools.count(0), list):
    if "foo" in item:
        item = replace_all(item, replaceDictionary)
        list[place] = item
        print item

You could do this:

for idx, item in enumerate(list):
   if 'foo' in item:
       item = replace_all(...)
       list[idx] = item