As of March 16, 2018, PyPI.org aka Warehouse (finally) supports Markdown in long descriptions. Warehouse replaced the old legacy PyPI implementation in April 2018.
You need to:
- Make sure - setuptoolsis upgraded to version 38.6.0 or newer
 
- Make sure - twineis upgraded to version 1.11.0 or newer
 
- Make sure - wheelis upgraded to version 0.31.0 or newer
 
- Add a new field named - long_description_content_typeto your- setup()call, and set it to- 'text/markdown':
 - setup(
    long_description="""# Markdown supported!\n\n* Cheer\n* Celebrate\n""",
    long_description_content_type='text/markdown',
    # ....
)
 - See PEP 566 - Metadata for Python Software Packages 2.1. 
- Use - twineto upload your distributions to PyPI:
 - $ python setup.py sdist bdist_wheel   # adjust as needed
$ twine upload dist/*
 
The old legacy PyPI infrastructure would not render Markdown, only the new Warehouse infrastructure does. The legacy infrastructure is now gone (as of 2018-04-30).
Currently, PyPI uses cmarkgfm as the markdown renderer, via the readme_renderer library (using readme_renderer.markdown.render(long_description) to produce HTML output). This means that your markdown documents will render exactly the same as on GitHub; it is essentially the same renderer.
You can validate your package long_description with the twine check command (twine 1.12.0 or newer).
The old < 2018-03-16 answer follows below.
Note: this is the old, now outdated answer, as of 2018-03-16 Markdown is supported provided you use the right tools, see above.
PyPI does not support Markdown, so your README will not be rendered into HTML.
If you want a rendered README, stick with reStructuredText; the Sphinx introduction to reStructuredText is a good starting point.
You probably want to install the docutils package so you can test your document locally; you want to run the included rst2html.py script on your README to see what errors are produced, if any. Your specific sample has too many errors:
$ bin/rst2html.py test.rst  > /tmp/test.html
test.rst:7: (ERROR/3) Unexpected indentation.
test.rst:3: (WARNING/2) Inline literal start-string without end-string.
test.rst:3: (WARNING/2) Inline interpreted text or phrase reference start-string without end-string.
test.rst:11: (WARNING/2) Block quote ends without a blank line; unexpected unindent.
test.rst:11: (WARNING/2) Inline literal start-string without end-string.
test.rst:11: (WARNING/2) Inline interpreted text or phrase reference start-string without end-string.
Your code block is using Github's Markdown extensions, which are entirely wrong for reStructuredText. You could use a reST code block (probably, if the PyPI version of docutils is new enough):
.. code-block:: python
    @attr(section='MySection', type='functional+', module='MyModule', id=1)
    def test_function(self):
        """
        This is the original docstring
        """
        pass
To test this locally you'll need to install Pygments as well.
There is a feature request with pull request to add support for Markdown, if you are interested.