The 62nd-ranked Lisicki erased both match points with service winners in the ninth game of the third set and beat the third-seeded Chinese player, 3-6, 6-4, 8-6, under the roof on Centre Court. Other winners on Day 4 included six-time champion Roger Federer, women's defending titlist Serena Williams and second-seeded Novak Djokovic.
"My emotions are so, I mean, just over the moon," said Lisicki, who served 17 aces. "It's just amazing."
"Nothing wrong, just unlucky," Li said. "I have two match points. But I can do nothing for these two match points."
Lisicki missed five months last season with a left ankle injury, and she fell out of the top 200 in the rankings.
"It was very, very hard," she said. "I really had to start from zero after being on crutches for seven weeks, so it just means so much to me, you know, winning the title in Birmingham and getting the wild card here. I appreciate it so much, to be back in Wimbledon. It's just a place that I love so much."
Williams recovered from a poor start to defeat Romania's Simona Halep, 3-6, 6-2, 6-1, and move into the third round, staying on course for a fifth title in her first tournament back since winning here last year.
After dropping the first set, Williams regained her renowned intensity and powerful shot-making to dominate the rest of the way on Court 2.