The loss ended the outstanding run of Li, who became the first Chinese player to reach a Grand Slam singles final.
Li appeared to become upset with some of the Chinese spectators in the crowd in the third set and asked the chair umpire to intervene. She later complained about the flashes from photographers at center court.
The win for Clijsters, the reigning U.S. Open champion, came in what was likely her last appearance at Melbourne Park - she said 2011 could be her last full year on the tour.
Andy Murray will try to become the first British man in almost 75 years to win a Grand Slam singles title when he plays 2008 champion Novak Djokovic in the men's final Sunday.
It was the first night match for Li at Rod Laver Arena, where the cooler temperatures after the sun sets usually makes the hard court slower. But Melbourne warmed up late Saturday, making even the night conditions similar to what Li would have experienced in cooler day matches earlier in the tournament.
Clijsters led 4-2 in head-to-head meetings before the match, but Li beat Clijsters in the Sydney International final two weeks ago after the Belgian player had led 5-0 in the opening set.
Li and Clijsters weren't into any mind games before the match, seen outside the dressing room doors joking and smiling with each other. Li seemed uncharacteristically nervous in her pre-match TV interview, though, and that translated to the court.
Clijsters opened the match with an ace, winning the first game on four straight points, then breaking Li the same way for a 2-0 lead after just a few minutes.
But Li found her range and seemed to lose her nervousness in the third game, breaking Clijsters and then holding for 2-2.
The turnaround continued when Li saved two big break points, then broke Clijsters in the final game of the set. She set up two set points with a stinging forehand that Clijsters didn't bother to run for, then two points later stunned Clijsters with a crosscourt forehand to close out the first set in 38 minutes.
There were four straight service breaks to open the second set before Li held to lead 3-2. Then Clijsters held for the first time in four games to tie the set at 3. Clijsters, with a backhand winner to the open court, broke Li in the next game to go up 4-3.
After that service break, Li went up to chair umpire Alison Lang of Britain and asked: "Can you tell the Chinese don't teach me how to play tennis?" That was in reference to some people in the crowd yelling words in Chinese to Li that seemed to be bothering her.
Clijsters, who lost her serve in four straight games from the end the first set, staged a remarkable turnaround, holding serve to open the deciding set and breaking Li's serve to take a 2-0 lead, just as she had in the opening set.
The Belgian player went up 3-1 when Li again lost her service for the seventh time in the match, then held in the next to go up 4-1.
Serving for the match at 5-3, Clijsters finished as she started it, taking four points in a row and winning the title when Li's last forehand landed wide.
As she walked back to her chair, Clijsters wiped tears from her eyes, then buried her head in a towel. Li also had tears in her eyes on the other side of the court.