The 37-year-old left-hander, who had won only three matches all year before Queen's and needed a wildcard to the main draw, appeared to be closing in on victory in the second set tiebreak.
But the gritty Simon used his metronomic baseline game to work his way back into an absorbing contest.
French Open LIVE - Osaka, Sabalenka, Evans and Tsitsipas all in action
30/05/2021 AT 00:10
Both players had chances to break serve early in the decider but Lopez, despite an incredible workload in the past 24 hours in which he has also reached the doubles final with Andy Murray, had just enough left in the tank.
He pressed hard with Simon serving at 5-6 and a punishing forehand return brought up matchpoint but he netted a forehand return off an inviting second serve with Simon eventually holding after 12 minutes to set up a tiebreak.
Lopez pulled away in the tiebreak though and with the match approaching the three-hour mark Simon netted a volley to end it.
He is the first wildcard to win the prestigious pre-Wimbledon title since American Pete Sampras 20 years ago.
Lopez is in the hunt to win the doubles title at Queen's too, as he and partner Andy Murray are set to face Joe Salisbury and Rajeev Ram later on Sunday.
'Heart is not in it' - Simon taking a break for mental health reasons
27/02/2021 AT 09:19
Australian Open
Rublev continues fine run with easy win over Lopez
12/02/2021 AT 22:29