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Error: [Errno 2] No such file or directory: '...\\python35.zip\\lib2to3\\Grammar.txt'. Python35.zip from this archive: https://www.python.org/ftp/python/3.5.0/python-3.5.0rc2-embed-amd64.zip. Path is correct.

This looks more like lib2to3 doesn't support running from a .zip archive.

got this traceback:
Traceback (most recent call last):
 File "setup.py", line 169, in <module>
 dist = setuptools.setup(**setup_params)
 File "distutils\core.py", line 134, in setup
 File "...\setuptools\setuptools\dist.py", line 299, in parse_command_line
 result = _Distribution.parse_command_line(self)
 File "distutils\dist.py", line 469, in parse_command_line
 File "...\setuptools\setuptools\dist.py", line 679, in handle_display_options
 return _Distribution.handle_display_options(self, option_order)
 File "distutils\dist.py", line 672, in handle_display_options
 File "...\setuptools\setuptools\dist.py", line 439, in print_commands
 cmdclass = ep.resolve()
 File "...\setuptools\pkg_resources\__init__.py", line 2383, in resolve
 module = __import__(self.module_name, fromlist=['__name__'], level=0)
 File "...\setuptools\setuptools\command\build_py.py", line 10, in <module>
 from setuptools.lib2to3_ex import Mixin2to3
 File "...\setuptools\setuptools\lib2to3_ex.py", line 12, in <module>
 from lib2to3.refactor import RefactoringTool, get_fixers_from_package
 File "<frozen importlib._bootstrap>", line 969, in _find_and_load
 File "<frozen importlib._bootstrap>", line 958, in _find_and_load_unlocked
 File "<frozen importlib._bootstrap>", line 664, in _load_unlocked
 File "<frozen importlib._bootstrap>", line 634, in _load_backward_compatible
 File "lib2to3\refactor.py", line 27, in <module>
 File "<frozen importlib._bootstrap>", line 969, in _find_and_load
 File "<frozen importlib._bootstrap>", line 958, in _find_and_load_unlocked
 File "<frozen importlib._bootstrap>", line 664, in _load_unlocked
 File "<frozen importlib._bootstrap>", line 634, in _load_backward_compatible
 File "lib2to3\fixer_util.py", line 9, in <module>
 File "<frozen importlib._bootstrap>", line 969, in _find_and_load
 File "<frozen importlib._bootstrap>", line 958, in _find_and_load_unlocked
 File "<frozen importlib._bootstrap>", line 664, in _load_unlocked
 File "<frozen importlib._bootstrap>", line 634, in _load_backward_compatible
 File "lib2to3\pygram.py", line 32, in <module>
 File "lib2to3\pgen2\driver.py", line 121, in load_grammar
 File "lib2to3\pgen2\pgen.py", line 385, in generate_grammar
 File "lib2to3\pgen2\pgen.py", line 15, in __init__
FileNotFoundError: [Errno 2] No such file or directory: '...\\python-3.5.0-embed-amd64\\python35.zip\\lib2to3\\Grammar.txt'
triggered e.g. by "python setup.py --help-commands" (when building setuptools)
workaround is to extract "...\python-3.5.0-embed-amd64\python35.zip" into a __directory__ named exactly the same (hence a directory named "python35.zip" which replaces the original zip file)

The problem is indeed that lib2to3 fails to load the Grammar.txt file if it is located inside a .zip archive.
I think one way to fix it is using of the "get_data" function of the loader https://docs.python.org/3/library/importlib.html#importlib.abc.ResourceLoader.get_data
However, this would make caching the Grammar more difficult, as one cannot write back the pickled dict to a zip file
Alternatively one could generate an importable *.pyc file from the grammar during the build process

(issue title updated to indicate this appears to be lib2to3 related and added Benjamin Peterson to the nosy list)
The build process already generates a _sysconfigdata.py file in order to pass along build time details to the sysconfig module in a way that isn't dependent on having otherwise build-time only files accessible at runtime.
Doing something similar with a _lib2to3grammar.py file seems like it could be a reasonable approach to making lib2to3 zip archive friendly, but I'm not familiar enough with pgen2's internals to say how feasible that would be.

I'm not sure I see why you'd want to run lib2to3 with the embedded distribution anyway. Surely you'd do any 2to3 conversion in a normal development installation, and then simply bundle the resulting converted scripts with your application and the embedded interpreter?

Are there existing tools for bundling the python35.zip (and adding additional packages)? I personally ran into this issue by using pip to add additional modules to my embeddable python but if there's a better way to migrate from devel to embeddable python I'd rather not have to use pip for this.

As Sébastien Taylor, I ran into the same problem. The workaround I found was to unzip the content of python35.zip and put it in the Lib/ folder.

I've been fighting with this issue today trying to import networkx in the embedded Python shipped with IDA-Pro. I have implemented a local fix to pgen.py that allows networkx to import and be used in IDAPython scripts. I added a check to see if a .zip archive appears in the path of the file loaded in the constructor and if so I use the zipfile package to open the archived file rather than the standard file open() function.
I've uploaded the modified pgen.py in case any one is interested.

Here is a more robust version of my local fix for this problem.

re: Paul's "I'm not sure I see why you'd want to run lib2to3 with the embedded distribution anyway. Surely you'd do any 2to3 conversion in a normal development installation"
lib2to3 is a library useful for doing things with Python code. Not just a stand alone tool.
Kirk: Could you please post your change as a pull request on https://github.com/python/cpython/ rather than attaching individual files here. a full file isn't a reviewable change.
Also, Grammar.txt is loaded and saved as a cached pickle file for speed. When packaging up an embedded stdlib bundle I recommend shipping that pickle. (loaded in pgen2/grammar.py).
both probably need to use https://docs.python.org/3.6/library/pkgutil.html#pkgutil.get_data to read the file out of the package rather than assuming it lives on a filesystem.
using the zipfile module within lib2to3 to try and figure out when it should look somewhere other than a filesystem is the wrong approach.

New changeset 8a5877165e993afb2633cd48da5222326d3f6e0e by Benjamin Peterson in branch 'master':
bpo-24960: use pkgutil.get_data in lib2to3 to read pickled grammar files (#4977)
https://github.com/python/cpython/commit/8a5877165e993afb2633cd48da5222326d3f6e0e

New changeset c1b8eb8006ed79bbf91dc7d89918f39cc10b4fe6 by Benjamin Peterson (Miss Islington (bot)) in branch '3.6':
bpo-24960: use pkgutil.get_data in lib2to3 to read pickled grammar files (GH-4977) (#4979)
https://github.com/python/cpython/commit/c1b8eb8006ed79bbf91dc7d89918f39cc10b4fe6

New changeset 770a802df7057bcf0d72bbc01026fac8d396e1b3 by Benjamin Peterson in branch '2.7':
[2.7] bpo-24960: use pkgutil.get_data in lib2to3 to read pickled grammar files (GH-4977) (#4980)
https://github.com/python/cpython/commit/770a802df7057bcf0d72bbc01026fac8d396e1b3

New changeset e5f7dccefaa8d97ab53b3051acbb4a4d49379dc4 by Benjamin Peterson in branch 'master':
make PatternCompiler use the packaged grammar if possible (more bpo-24960) (#5034)
https://github.com/python/cpython/commit/e5f7dccefaa8d97ab53b3051acbb4a4d49379dc4

New changeset 417f76a20e93044e422fb328a2d8e200fc6df295 by Benjamin Peterson (Miss Islington (bot)) in branch '2.7':
make PatternCompiler use the packaged grammar if possible (more bpo-24960) (GH-5034) (#5037)
https://github.com/python/cpython/commit/417f76a20e93044e422fb328a2d8e200fc6df295

New changeset 85f71aa9d6f834c7d64e979009c8fda0f19b585d by Benjamin Peterson (Miss Islington (bot)) in branch '3.6':
make PatternCompiler use the packaged grammar if possible (more bpo-24960) (GH-5034) (#5036)
https://github.com/python/cpython/commit/85f71aa9d6f834c7d64e979009c8fda0f19b585d

I have simmilar problem but im using python 2.7 on android. So I think I cant use this solution 
My problem:
https://bugs.python.org/issue33208