Isner hit 43 aces and 88 winners past World No. 87 Nalbandian for victory in four hours and 41 minutes on Margaret Court Arena.
"It was a lot of fun, first off," said Isner. "Very similar to my match here last year where I lost 9-7 in the fifth [against Marin Cilic] on that same court. I told myself I didn't want to repeat that effort. I wanted to actually win that one. It felt really, really good to win it.
"[The] only thing that was keeping me in [it] was my serve. From the back of the court [he] was just not missing much and playing aggressively and playing really well. I knew he was capable of that. I mean, I was hoping he wasn't going to pull it out today. I felt like he played well, but I just hung in there. Eventually it paid off."
Isner will next play No. 18 seed Feliciano Lopez of Spain in the third round.
"It was a great match," said Nalbandian. "But I think I lost another one like that, as well - [the 2003] US Open semi-finals with Andy Roddick. [That was] more important [than] this second round today."
In June 2010, Isner completed a three-day marathon first-round win at Wimbledon over Nicolas Mahut in 11 hours and five minutes, serving 113 aces, before winning 70-68 in the fifth set.
A little later on day three, Ukrainian No. 13 seed Alexandr Dolgopolov also overcame a five-set battle, saving one match point at 5-6, 30/40 in the fifth set, to beat Tobias Kamke of Germany 4-6, 6-1, 6-1, 3-6, 8-6 in three hours and 18 minutes.
Despite committing 73 unforced errors, Dolgopolov converted nine of his 20 break point opportunities and hit 61 winners.
"Physically I feel fine," said Dolgopolov, who beat Australian Greg Jones in five sets on Monday. "I was pretty concerned from the first match. I wasn't feeling good a bit health wise. I think I played a pretty good game. It was up and down a bit, but he played also some unbelievable shots. He was playing very well."
Dolgopolov will now meet Australian No. 1 Bernard Tomic, who withstood 22 aces and 52 winners from the racquet of American Sam Querrey for a 3-6, 6-3, 7-6(3), 6-3 victory.
"It very, very difficult to really serve," said Tomic. "It was tough because he was hitting his forehand well. I think I was guessing the wrong way in the first set, and second set I started guessing the right way and he started missing a lot more first serves."