The Chinese fifth seed was forced to come from a set down before eventually advancing 4-6 6-1 6-1 in one hour and 46 minutes on court.
Davis surprised many by breaking for a 4-2 lead in the first set and going on the close it out. However, that is where her challenge ended as Li stepped up a gear in the second.
After levelling the match 6-1, she went on to wrap up the match by the same scoreline in the deciding set.
She will face Angelique Kerber in the third round.