Before I write a long winded explanation, let me give you the solution:
index, value = max(enumerate(list1), key=lambda x: x[1])
One line, efficient (single pass O(n)), and readable (I think).
Explanation
In general, it's a good idea to use as much of python's incredibly powerful built-in functions as possible.
In this instance, the two key functions are enumerate() and max().
enumerate() converts a list (or actually any iterable) into a sequence of indices and values. e.g.
>>> list1 = ['apple', 'banana', 'cherry']
>>> for tup in enumerate(list1):
... print tup
...
(0, 'apple')
(1, 'banana')
(2, 'cherry')
max() takes an iterable and returns the maximum element. Unfortunately, max(enumerate(list1)) doesn't work, because max() will sort based on the first element of the tuple created by enumerate(), which sadly is the index.
One lesser-known feature of max() is that it can take a second argument in the form max(list1, key=something). The key is a function that can be applied to each value in the list, and the output of that function is what gets used to determine the maximum. We can use this feature to tell max() that it should be ranking items by the second item of each tuple, which is the value contained in the list.
Combining enumerate() and max() with key (plus a little help from lambda to create a function that returns the second element of a tuple) gives you this solution.
index, value = max(enumerate(list1), key=lambda x: x[1])
I came up with this recently (and am sprinkling it everywhere in my code) after watching Raymond Hettinger's talk on Transforming Code into Beautiful, Idiomatic Python, where he suggests exorcising the for i in xrange(len(list1)): pattern from your code.
Alternatively, without resorting to lambda (Thanks @sweeneyrod!):
from operator import itemgetter
index, value = max(enumerate(list1), key=itemgetter(1))