Top seed Lee entered the tournament scrambling to be fit for the opening match, but was at the peak of his powers in a crushing 20-13 20-14 win over third-seeded Chinese Chen Long.
Reigning champion Lin, who thrashed Lee for the gold medal in an emotional victory at his home Games, duly played his part by destroying South Korea's Lee Hyun-il 21-12 21-10 in the second semi-final.
The mouth-watering final pits two of the finest players of their generation against each other, with both hoping to re-write the records.
Lin, badminton's equivalent to tennis's Roger Federer, has won every major title going, but has the chance to become the first man to defend an Olympic singles title.
Lee was propelled by a rowdy Malaysian contingent in a near-full house at the 4,800 capacity Wembley Arena, and will bid to end his country's 48-year wait for an Olympic gold medal since they first sent a team to the 1964 Tokyo Games.
"I didn't expect to win (today) because my preparation has only been 50 percent," the 29-year-old, who suffered a serious ankle injury in the team-based Thomas Cup event in May, told reporters.
"I said to myself 'I have nothing to lose', but when I saw it was 11-4 in the first game I realized I had to win this match and that's why I played more confidently.
"It's going to be quite tough and there will be a lot of pressure. I'm definitely going to get a medal but I'll work hard to get gold for Malaysia."
Lin, a national hero in China and one of the country's most marketable athletes, edged Lee in a tense final at the world championships at the same venue last year.
"I'm really happy that I get to meet my old opponent," said 28-year-old Lin. "We are the same age and we get to play at the final of the Olympics. It's really good as it shows that we have not been knocked out by time."
China's peerless badminton team has been tainted by a match-throwing scandal that disqualified their world champion doubles pair Yu Yang and Wang Xiaoli, but the remaining players have shown no sign of strain.
Zhang Nan and Zhao Yunlei defeated compatriots Xu Chen and Ma Jin to win the mixed doubles gold and China already has another gold in the bag in the women's singles, with top seed Wang Yihan and third seed Li Xuerui winning their semi-finals in the morning session.
Wang deflated a nation of over a billion people when she thrashed India's strong title hope Saina Nehwal.
Nehwal's run to the last four raised a tidal wave of expectation in her home country but she admitted to suffering an attack of nerves as she crumbled 21-13 21-13, despite the overwhelming support of the Wembley Arena crowd.
"I was feeling a little bit (nervous), I think. I was not playing my strokes freely and I was just too much in a hurry," she told reporters.
The farcical scenes earlier in the week, with four women's doubles pairs blatantly playing to lose their matches, appeared to be fresh in the mind of the crowd, and Li's all-China semi-final with world number two Wang Xin played out in a subdued atmosphere.
Li prevailed 22-20 21-18 and should feel confident of springing an upset in Saturday's final.
"I've been getting text messages from my parents back in Chongqing every day," she told Reuters with a smile, referring to her home city on the Yangtze river.
"They are really nervous!"
It was a happy day for Denmark, their mixed doubles pair Joachim Fischer and Christinna Pedersen hammering Indonesia's Tontowi Ahmad and Liliyana Natsir 21-12 21-12 in the bronze medal decider.
It was mission accomplished for Denmark's barrel-chested head coach Lars Uhre, who set a goal for his team to pinch a medal from badminton's Asian powers and make another semi-final.
"Very emotional feeling - that's the moment I've been waiting for so long," Uhre told Reuters, struggling to hold back tears.