Do I just call item.setData(QtCore.Qt.UserRole, "New text goes here") again?

Correct

What method can I call on a QListWidgetItem to easily disable the text?

before text = index.data(QtCore.Qt.UserRole) add

if(index.data(QtCore.Qt.UserRole+1)):
    return

Now you can use item.setData(QtCore.Qt.UserRole+1,true) to disable the text and item.setData(QtCore.Qt.UserRole+1,false) to enable it again

How do I make the text overlaying the QIcon red(it defaults to black) and change the font size?

replace style.drawItemText(painter, option.rect,QtCore.Qt.AlignCenter, option.palette, option.state & QStyle.State_Enabled, text) with (using, C++ here, sorry)

painter->save();
QPen pen = painter->pen();
pen.setColor(Qt::red); // color
painter->setPen(pen);
QFont fnt = painter->font();
fnt.setPointSize(12); // font size
painter->setFont(fnt);
style->drawItemText(painter, option.rect, Qt::AlignCenter, option.palette, option.state & QStyle::State_Enabled, text.toString());
painter->restore();

1. http://doc.qt.io/qt-5/qlistwidgetitem.html#setText
2. What do you mean by "disable the text"?
3. Qt style sheets: http://doc.qt.io/qt-5/stylesheet-examples.html

Terrific, after making minor corrections I got text to display in the center of the Qicon! All I have left to do are 3 things.

1. What method can I call on a QListWidgetItem to easily change the text to something different? Do I just call item.setData(QtCore.Qt.UserRole, "New text goes here") again?
2. What method can I call on a QListWidgetItem to easily disable the text?
3. How do I make the text overlaying the QIcon red(it defaults to black) and change the font size?

Here's the corrected(working) subclass for reference:

class TextOverDelegate(QStyledItemDelegate):
    def __init__(self, parent=None):
        super(TextOverDelegate, self).__init__(parent)

    def paint(self, painter, option, index):
        super(TextOverDelegate,self).paint(painter,option,index)
        text = index.data(QtCore.Qt.UserRole)
        if(option.widget):
            style = option.widget.style()
        else:
            style = QApplication.style()
        style.drawItemText(painter, option.rect,QtCore.Qt.AlignCenter, option.palette, option.state & QStyle.State_Enabled, text)

Here's what it currently produces after creating the QListWidgetItem with item = QtWidgets.QListWidgetItem(QtGui.QIcon(path), None) and calling item.setData(QtCore.Qt.UserRole, "Test Qicon text") before finally calling self.listWidget.addItem(item)

if(option.widget):
style = option.widget.style()
else:
style = QApplication.style()

aka use widget style / use global style

style = option.widget

why do you assign widget to style? style has to be an instance of QStyle.

Thanks a bunch for the detailed response! I tried implementing the sublclass of QStyledItemDelegate in Pyside2, however I'm getting AttributeError: 'PySide2.QtWidgets.QListWidget' object has no attribute 'drawItemText' I understand you are not super familiar with Python, but might you or somebody else who is be able to identify what I did wrong? Thank you!

My Pyside 2 implementation:

class TextOverDelegate(QStyledItemDelegate):
    def __init__(self, parent=None):
        super(TextOverDelegate, self).__init__(parent)

    def paint(self, painter, option, index):
        text = index.data(QtCore.Qt.UserRole)
        if(option.widget):
            style = option.widget
        else:
            style = QApplication.style()
        style.drawItemText(painter, option.rect,QtCore.Qt.AlignCenter, option.palette, option.state & QStyle.State_Enabled, text)

In the main UI window class all I set the new delegate as the list widget's current item delegate.

self.custom_delegate = TextOverDelegate()
self.listWidget.setItemDelegate(self.custom_delegate)

class TextOverDelegate : public QStyledItemDelegate{
    Q_OBJECT
    Q_DISABLE_COPY(TextOverDelegate)
public:
    explicit TextOverDelegate(QObject* parent = Q_NULLPTR)
        :QStyledItemDelegate(parent)
    {}
    void paint(QPainter *painter, const QStyleOptionViewItem &option, const QModelIndex &index) const Q_DECL_OVERRIDE{
        QStyledItemDelegate::paint(painter,option,index);
        const QVariant text = index.data(Qt::UserRole);
        if(text.isValid()){
            const QStyle *style = option.widget ? option.widget->style() : QApplication::style();
            style->drawItemText(painter, option.rect, Qt::AlignCenter, option.palette, option.state & QStyle::State_Enabled, text.toString());
        }
    }
};

This delegate will paint the text stored using QListWidgetItem::setData passing Qt::UserRole

There's no need at all for setItemWidget nor a custom widget from a QItemDelegate. A subclass of QStyledItemDelegate with its paint event re-implemented is enough.

Just your custom widget and set the custom Widget using setItemWidget(...) .

2nd Option seems to easy one.

Where's @VRonin...?

OR
Just your custom widget and set the custom Widget using setItemWidget(...) .

2nd Option seems to easy one.

void paintEvent(....) {
QPainter p(this).
p.drawPixmap(icon)
p.drawRect(..)
}

Set this widget object using setItemWidget(...) function.