Kerr's two goals, including a subline chipped finish, in the final for last season's competition, set Chelsea up for a comfortable win over Arsenal - but her brace proved to be decisive in getting them the narrow win over City.
Emma Hayes' side broke the deadlock as Mille Bright's deep cross thwarted City goalkeeper Ellie Roebuck, with Kerr's touch on the goal-line ensuring the ball went in.
City hit back through Lauren Hemp's delightful curling effort before Erin Cuthbert's piledriver in the second half appeared to win it for Chelsea.
The final went to extra time as Hayley Raso struck late on for City, however, Kerr had the final word as she fired in the winner following a counter-attack.
The result sees Chelsea secure an FA Cup and WSL double, having pipped Arsenal to the title by a point.
The crowd of 49,094 was a new record attendance for the Women's FA Cup Final, beating the 45,423 who saw Chelsea defeat Arsenal in 2018. However, it was short of the expected crowd, with more than 55,000 tickets sold.
City came closest in the opening period when Caroline Weir missed the target and Hemp had a shot blocked by Bright. After a lack of clear-cut chances in the opening half an hour, Chelsea took the lead in the 33rd minute.
Bright sent in a long looping cross from the right and goalkeeper Ellie Roebuck mistimed her jump to try to gather the ball, which went over her head and to Kerr at the far post. The WSL golden boot winner made no mistake heading it over the line to hand Hayes' side the advantage.
However, City equalised just before half time when Hemp curled the ball into the corner. The 21-year-old carved a space to get a shot away, easily beating her marker Bright and sending her the wrong way before taking a touch and striking the leveller.
Chelsea were back in front just after the hour mark. A poor goal kick from Roebuck went straight to Cuthbert and - after an exchange of passes - she fired home from distance.
Kerr had a chance to kill the game off in the 78th minute but she was unable to get a clear shot away, and City were able to clear their lines.
With time running out, Raso cleverly beat the Chelsea offside trap and latched onto a well-struck cross from Alex Greenwood. She used her pace to run through on goal before firing into the back of the net past Ann-Katrin Berger.
However, Kerr won it in added time, capitalising on City being a player down at the back after Alana Kennedy was suffering with cramp.
The Australia international drove forward and saw her shot take a massive deflection off Greenwood, beating Roebuck and finding the back of the net to settle the contest.