Federer was impressive in the opening set on Sunday, winning the first three games to claim it in just over half an hour but Djokovic came storming back to eventually lift the 42nd trophy of his professional career.
After levelling the match at one-set all, Djokovic looked to be cruising in the third with a 5-3 lead but Federer won three straight games to edge ahead before the Serbian world number two held serve to force a tie-break.
Djokovic took control in the tie-break, winning the opening three points and five of the first six before eventually triumphing at the ATP 1000 event in two hours and 14 minutes.
Djokovic, 26, previously won at Indian Wells in 2008 and 2011, and he now only sits behind Federer (four) in titles won at the Californian tournament.
The win saw Djokovic claim his first title of 2014, while it also saw him gain some revenge after being dumped from the Dubai Tennis Championships by Federer in February.
Djokovic struggled on serve in the opening set as Federer took control with the Serb double-faulting three times and getting just 59 per cent of his first serves in play.
In a mammoth second game, Federer eventually broke Djokovic before holding serve himself, which set up the 32-year-old Swiss to win the opener.
The second set saw Djokovic lift his service accuracy, as he produced three aces, while his first-serve percentage rose to 70.
Djokovic won the final three games of the second set to close it out and then broke Federer in the Swiss' second service game of the third to take control of the match.