Pendleton washed away the disappointment of her disqualification in the team sprint by winning the gold medal in the keirin with a flawless performance in her least-favourite event.
Pendleton, who won the individual sprint in Beijing four years ago, will retire after the London Games. Determined to go out in style, she did not attend the post race press conference to rest up before defending her title in the individual sprint, with the qualifying starting Sunday.
"I'm really looking forward to the sprint," Pendleton said. "I'm hoping that the sprint, I've got a good chance there. I've got to take confidence from this into tomorrow."
In the final, the multiple track world champion surged ahead of her rivals before the start of the final lap, as fans erupted in deafening cheers. She then held off Guo Shuang of China, who claimed the silver medal. Lee Wai Sze of Hong Kong took bronze.
Calgary's Monique Sullivan was sixth.
Pendleton, who was devastated after the team sprint, raised both arms after crossing the finish line then brandished a Union Jack to the delight of the 6,000 spectators including Tour de France and Olympic time trial champion Bradley Wiggins.
"Thank you so much to everyone who's helped me get here," she said. "The crowd have been fantastic and it really helped me today. My legs were good from last night and I still wanted to really show what I've got and it worked out okay, I guess."
The 31-year-old Pendleton gave Britain its third gold medal in two days of competition on the super fast track, just moments after Ed Clancy, Geraint Thomas, Peter Kennaugh and Steven Burke won the team pursuit title in a world record time.
Pendleton managed to stay focused during her teammates' celebrations, gazing into the distance from the paddock with her headphones isolating her from the scenes of jubilation.
"It was really hard with the excitement of the great job the girls did qualifying with a world record and then the guys smash the world record and win a gold medal," she said. "I was just, like, 'focus, Vic, focus. You've still got a race. But it was so hard. I can't believe it."
After dominating the track events in Beijing, Britain is off to another great start in the Velodrome, having won three out of the four races already held. The Britons claimed their first gold on Thursday after Sir Chris Hoy and his teammates won the team sprint.
In the keirin, an unpredictable and physical event extremely popular in Japan, riders line up on the track behind a pace motorbike called a derny.
Riders can jockey for position behind the derny but are not allowed to pass it. The race then turns into a massive sprint when the derny leaves the track with two-and-a-half laps to go.
After easily getting through the qualifying rounds, Pendleton took a cautious start in the final and put herself in third position behind Guo and Lee. She carefully watched her Australian archrival Anna Meares, who was the first to attack and jumped to the front with about two laps to go.
Pendleton responded immediately to pull away with a lethal acceleration and stayed ahead until the end.
Guo missed another chance to become the first athlete from China to win Olympic gold in track cycling. The former keirin world champion was second in the team sprint with Gong Jinjie after being stripped from the title for an illegal relay.
"I was very close to Victoria today, she's not unbeatable," said Guo, who will also compete in the sprint. "Of course I'm disappointed to have missed out on China's first gold medal, but on the other hand we also dramatically improved. We just need a bit more time."
A two-time defending world champion in the keirin, Meares ended a disappointing fifth.
"I thought I would get out in front early and give myself what I thought would be an advantage over Victoria and Guo, but I got squeezed at 200 metres and didn't quite execute," Meares said.
It was the first time women's keirin was held at the Olympics, and it was also Hong Kong's first medal in track cycling.
"I'm so proud," Lee said. "But I'm not surprised because I knew I had all it takes to get a medal."