DFT calculations of the Li substitutional defect in diamond based on the B3LYP functional and a 64-atom supercell indicate that (i) the quartet (Sz = 3/2) state is lower in energy than the doublet (Sz = 1/2) state by 0.07 eV (810 K) for fully relaxed static structures and by 0.09 eV (1045 K) with the inclusion of zero-point vibrations, (ii) the effective charges at the Li and four neighbouring C sites are similar in the two spin states, but there are substantial differences in the corresponding spin distributions, and (iii) there are unprecedented differences in the Raman spectra of the two spin states, in terms of both frequency distributions and intensities, that can most reasonably be attributed to strong spin-phonon coupling, in view of the very similar charge distributions in the two states. These differences are an order of magnitude greater than those reported previously for any bulk transition metal or rare-earth compound. The basis sets and functional used in these calculations predict many of the relevant constants (a0, c11, c44) of diamond mostly to within 1% of the experimental values, most notably the TO(X) Raman frequency and the phonon density of states. Comparisons with the calculated Raman spectra of the quintet (Sz = 2) and singlet (Sz = 0) spin states of the neutral vacancy defect, which have similar spin distributions at the four neighbouring C atoms (Cn) to the vacancy site as those at the corresponding Cn sites in the quartet and singlet states of the Li defect, show that the differences in the two Raman spectra of the latter defect are closely related to those in the former.