Australian Anna Meares took the bronze while world champion Kristina Voegel of Germany was out of the medals.
Meares, an 11-times world champion, has now won a medal in four consecutive Olympics -- extending her tally to six.
Once the derney, the motorised bike that paces the riders around the opening five and half laps at a steadily increasing speed, moved aside, battle commenced for the final 525m.
Ligtlee quickly moved to the front and always kept ahead of the scrap developing behind her.
James came from last place and had to take the outside line but finished with a tremendous burst to pip the 32-year-old Meares by half a tyre width.
Ligtlee is the first Dutchwoman to win a track gold since Marianne Vos won the points race in Beijing in 2008 and only the third ever. She also gave the Dutch a second cycling gold at this Games after Anna van der Breggen won the road race.
"It's unbelievable. The semi-final didn't go as I had hoped, but in the keirin, anything can happen," Ligtlee told reporters.
"It was go, go, go, go, to the finish line, no thinking."
Meares, twice an Olympic gold medallist, had to settle for a place on the podium this time.
"I'd been patient, it was a really strong field. You have to be smart. I had to be patient and keep my run as late as possible. I am so happy," she said.
James, like Ligtlee an Olympic debutant, finished third in the world championships this year behind Meares and Voegel and offered more evidence of the depth in the British team.
"I had so much speed in that last half, I don't know where it came from. I just went for that medal," James told reporters.
(Reporting by Martyn Herman; Editing by Frank Pingue, Ken Ferris and Meredith Mazzilli)
