Case-insensitive search and replace with sed

Update: Starting with macOS Big Sur (11.0), sed now does support the I flag for case-insensitive matching, so the command in the question should now work (BSD sed doesn't reporting its version, but you can go by the date at the bottom of the man page, which should be March 27, 2017 or more recent); a simple example:

# BSD sed on macOS Big Sur and above (and GNU sed, the default on Linux)
$ sed 's/ö/@/I' <<<'FÖO'
F@O   # `I` matched the uppercase Ö correctly against its lowercase counterpart

^{Note: I (uppercase) is the documented form of the flag, but i works as well.}

Similarly, starting with macOS Big Sur (11.0) awk now is locale-aware (awk --version should report 20200816 or more recent):

# BSD awk on macOS Big Sur and above (and GNU awk, the default on Linux)
$ awk 'tolower($0)' <<<'FÖO'
föo  # non-ASCII character Ö was properly lowercased

The following applies to macOS up to Catalina (10.15):

To be clear: On macOS, sed - which is the BSD implementation - does NOT support case-insensitive matching - hard to believe, but true. The formerly accepted answer, which itself shows a GNU sed command, gained that status because of the perl-based solution mentioned in the comments.

To make that Perl solution work with foreign characters as well, via UTF-8, use something like:

perl -C -Mutf8 -pe 's/öœ/oo/i' <<< "FÖŒ" # -> "Foo"

• -C turns on UTF-8 support for streams and files, assuming the current locale is UTF-8-based.
• -Mutf8 tells Perl to interpret the source code as UTF-8 (in this case, the string passed to -pe) - this is the shorter equivalent of the more verbose -e 'use utf8;'.^{Thanks, Mark Reed}

(Note that using awk is not an option either, as awk on macOS (i.e., BWK awk and BSD awk) appears to be completely unaware of locales altogether - its tolower() and toupper() functions ignore foreign characters (and sub() / gsub() don't have case-insensitivity flags to begin with).)

A note on the relationship of sed and awk to the POSIX standard:

BSD sed and awk limit their functionality mostly to what the POSIX sed and POSIX awk specs mandate, whereas their GNU counterparts implement many more extensions.

^{Editor's note: This solution doesn't work on macOS (out of the box), because it only applies to GNU sed, whereas macOS comes with BSD sed.}

Capitalize the 'I'.

sed 's/foo/bar/I' file

Another work-around for sed on Mac OS X is to install gsedfrom MacPorts or HomeBrew and then create the alias sed='gsed'.

The sed FAQ addresses the closely related case-insensitive search. It points out that a) many versions of sed support a flag for it and b) it's awkward to do in sed, you should rather use awk or Perl.

But to do it in POSIX sed, they suggest three options (adapted for substitution here):

1. Convert to uppercase and store original line in hold space; this won't work for substitutions, though, as the original content will be restored before printing, so it's only good for insert or adding lines based on a case-insensitive match.

2. Maybe the possibilities are limited to FOO, Foo and foo. These can be covered by

    s/FOO/bar/;s/[Ff]oo/bar/
   

3. To search for all possible matches, one can use bracket expressions for each character:

    s/[Ff][Oo][Oo]/bar/