Thanks in part to the answers here, I was able to come up with a solution for adding items to a dictionary, including adding items to list values within the dictionary if they are not already in the list.

Python 3:

import collections.abc

def dict_update(d, u, fixed=False):
    for k, v in u.items():
        if isinstance(v, collections.abc.Mapping):
            if k in d.keys() or not fixed:
                d[k] = dict_update(d.get(k, {}), v, fixed=fixed)
        elif isinstance(v, list):
            if k in d.keys() or not fixed:
                # Iterate through list value and add item if not already in list
                for i in v:
                    if i not in d.get(k, []):
                        d[k] = d.get(k, []) + [i]
        else:
            if k in d.keys() or not fixed:
                d[k] = v
    return d

dictionary1 = {
    "level1": {
        "level2": {"levelA": 0, "levelB": 1},
        "level3": ["itemA", "itemB"]
    }
}

update = {
    "level1": {
        "level2": {"levelB": 10},
        "level3": ["itemC"]
    }
}

updated_dict = dict_update(dictionary1, update, fixed=False)
print(updated_dict)

>>> {'level1': {'level2': {'levelA': 0, 'levelB': 10}, 'level3': ['itemA', 'itemB', 'itemC']}}

If fixed=True, the input dictionary d will be fixed and values will only be updated if the keys are already present in the original dict, so new keys will not be added.