When do you use map vs flatMap in RxJava?

map transform one event to another.
flatMap transform one event to zero or more event. (this is taken from IntroToRx)

As you want to transform your json to an object, using map should be enough.

Dealing with the FileNotFoundException is another problem (using map or flatmap wouldn’t solve this issue).

To solve your Exception problem, just throw it with a Non checked exception : RX will call the onError handler for you.

Observable.from(jsonFile).map(new Func1<File, String>() {
    @Override public String call(File file) {
        try {
            return new Gson().toJson(new FileReader(file), Object.class);
        } catch (FileNotFoundException e) {
            // this exception is a part of rx-java
            throw OnErrorThrowable.addValueAsLastCause(e, file);
        }
    }
});

the exact same version with flatmap :

Observable.from(jsonFile).flatMap(new Func1<File, Observable<String>>() {
    @Override public Observable<String> call(File file) {
        try {
            return Observable.just(new Gson().toJson(new FileReader(file), Object.class));
        } catch (FileNotFoundException e) {
            // this static method is a part of rx-java. It will return an exception which is associated to the value.
            throw OnErrorThrowable.addValueAsLastCause(e, file);
            // alternatively, you can return Obersable.empty(); instead of throwing exception
        }
    }
});

You can return too, in the flatMap version a new Observable that is just an error.

Observable.from(jsonFile).flatMap(new Func1<File, Observable<String>>() {
    @Override public Observable<String> call(File file) {
        try {
            return Observable.just(new Gson().toJson(new FileReader(file), Object.class));
        } catch (FileNotFoundException e) {
            return Observable.error(OnErrorThrowable.addValueAsLastCause(e, file));
        }
    }
});