Using generator functions can make your example easier to read and improve performance.

Python 2

Using the Iterable ABC added in 2.6:

from collections import Iterable

def flatten(xs):
    for x in xs:
        if isinstance(x, Iterable) and not isinstance(x, basestring):
            for item in flatten(x):
                yield item
        else:
            yield x

Python 3

In Python 3, basestring is no more, but the tuple (str, bytes) gives the same effect. Also, the yield from operator returns an item from a generator one at a time.

from collections.abc import Iterable

def flatten(xs):
    for x in xs:
        if isinstance(x, Iterable) and not isinstance(x, (str, bytes)):
            yield from flatten(x)
        else:
            yield x