The Chinese twice required medical treatment after hitting the deck but Azarenka stood firm to shrug off the distractions and win 4-6 6-4 6-3 in two hours and 40 minutes.
In doing so, she not only retained her Melbourne crown but also maintained her position at the top of the world rankings.
"I feel really happy," said Azarenka. "It was a long final, a tough match.
"She played great tennis and some unfortunate things happened to her but that's tennis."
Li's first accident saw her go over on her left ankle midway through the second set. She then had a second tumble immediately after a 10-minute, third-set hold-up due to a nearby firework display to celebrate Australia Day.
"I'm just happy that with everything I went through I could still manage to give my best and really focus on my game and play the tennis that I produced," added Azarenka.
"I'm particularly glad that after the second one I could keep my focus, keep my cool and execute my shots."
Li won a first set which included seven breaks of serve with Azarenka, in particular, struggling to find her rhythm.
It allowed the 2011 runner-up here to break for 3-1 and then again for 4-2.
The Belarusian, whose controversial semi-final win over Sloane Stephens meant she faced a smattering of boos when she made her way on to Rod Laver Arena, hit back and had the chance to serve for 5-5 but was broken once more - fittingly after delivering a double fault.
Although she dropped the opener, there were signs that Azarenka was starting to find her range and she swiftly established a 3-0 second-set lead.
A woeful game, in which her forehand broke down completely, slowed her momentum before the match took a dramatic turn when Li collapsed in a heap in the fourth point of the fifth game.
It looked as though she may struggle to carry on but after seven minutes of treatment, during which her ankle was heavily strapped, she returned.
And there appeared no immediate sign of her movement being impaired as she starting hitting winners from all angles to get it back to 2-3.
Azarenka was looking the stronger but consistently failed to take her chances as Li then drew level at 4-4.
Having worked so hard to get back into the set, Li promptly undid it all by playing a sloppy game, culminating in a mis-hit backhand on break point as Azarenka sensed her chance.
And she took it to claim the set and take the match to a decider, which started cagily until the fireworks arrived.
In the first point following the resumption, Li was down again, going over on the same ankle before hitting her head on the hard surface.
The trainer was called once more, with Azarenka doing well to keep her composure to claim the game after going back behind her opponent with a forehand down the line.
The world number one was starting to get up a head of steam and she broke for 3-2 and swiftly made it 4-2 with one of her best games on serve in the match.
Li had a chance to draw level at 4-4 only to push a backhand return beyond the baseline.
And it proved to be her final opportunity as Azarenka held and then broke to claim her second successive Melbourne crown.
"In these kind of matches you always have to take the opportunities at the important moments," said Azarenka.
"And in the second and third sets that's what I did better.
"In the first set she was really on top of me. She was really going for her shots and making everything happen."
Anything other than a win tonight would have seen Serena Williams supplant Azarenka at the top of the rankings - something the 23-year-old insisted was not preying on her mind beforehand.
"I never thought about that," she insisted.
"The pressure was there but I like the pressure."
Li revealed the second fall in particular had been worrying at the time.
"The head touched the floor and for two seconds I couldn't see anything, it was totally black," she said.
"I think the tournament doctor and physio did a very good job.
"I am a little bit sad that I lost the final but, if I look at the start of the year until now, I have to be proud of myself."