Matplotlib legend makes the image too large

The trick is to set the label only once. You can add a variable for each label and replace it with None once it's used. Note that using axvline to draw a background has the problem that the line width is measured in pixel space, so neighboring lines will either overlap or have a small white space inbetween. Better to use axvspan. To avoid the white space at the left and at the right, you can explicitly set the x-limits.

The code can be simplified somewhat using a loop.

Updated code:

• group consecutive spans together for drawing
• precalculate the effect of alpha so the background can be drawn without the need for transparency

from matplotlib import pyplot as plt
from matplotlib import colors as mcolors
import numpy as np
import pandas as pd
import itertools

fig, ax = plt.subplots()

# create some random data
x = np.arange(100)
y = np.sinh(x/20)
indicators = [-1, 0, 1]
node = 0
data = [np.random.choice(indicators, len(x), p=[10/16,1/16,5/16])]

labels = ["OUT", "RZ0", "RZ1"]
colors = ['lime', 'purple', 'gold']

alpha = 0.4
# precalculate the effect of alpha so the colors can be applied with alpha=1
colors = [[1 + (x - 1) * alpha for x in mcolors.to_rgb(c)] for c in colors]

m = 0
for val, group in itertools.groupby(data[node]):
    width = len(list(group))
    ind = indicators.index(val)
    ax.axvspan(m, m + width, color=colors[ind], linewidth=0, alpha=1, label=labels[ind])
    labels[ind] = None  # reset the label to make sure it is only used once
    m += width

ax.plot(x, y, 'b+')
ax.set_xlim(0, len(data[node]))
ax.legend(framealpha=1) # to make the legend background opaque
plt.show()