Dujon Sterling opened the scoring just before half time before Tammy Abraham and Fikayo Tomori gave the hosts a three goal advantage.
Brahim Diaz reduced the deficit late on but it was too late to spark a comeback and the hosts picked up the trophy with a 4-2 aggregate victory.
Jason Wilcox’s side started brightly when Isaac Buckley broke down the right and fizzed in a dangerous cross, only for the Chelsea defence to clear it.
It took 20 minutes for the game’s first chance when Abraham failed to capitalise on a loose, bouncing ball deep in City’s area.
The striker stretched out a leg to attempt to divert home but the pressure of Cameron Humphreys did enough to put him off making a meaningful connection.
The threatening Aaron Nemane infiltrated Chelsea’s back line shortly after, only for Jay Dasilva to slide in and beat the lurking Buckley to the winger’s ball.
Buckley continued to dart at the home side’s defence and he had Dasilva on the floor with some dazzling footwork and his floated delivery to the back post was unfortunate not to be greeted by a team mate.
The hosts went all out in their efforts to go into the break ahead, but City’s defence withstood a late bombardment.
Mason Mount latched a left-footed strike past Grimshaw’s goal from a promising position before Dasilva’s inviting, driven ball was lucky not to be converted past the City keeper.
It looked as if the two would go into the break level when Jake Clarke-Salter’s header dropped the wrong side of City’s crossbar, but, despite all their efforts, Wilcox’s side went behind in the cruelest of circumstances seconds before the half-time whistle.
Grimshaw strayed out the safety of his area when Mukhtar Ali pumped a speculative long ball forward from deep inside Chelsea’s half.
The 18-year-old keeper hesitated to clear, allowing the onrushing Sterling to nick the ball past him and tap into an open net.
City started the second-half as they did in the first period, when Buckley tricked his way into Chelsea’s box only for his cross to be cleared.
Nmecha thought he had put City back on level terms when he tapped home Buckley’s rebounded effort on 52 minutes, but the striker was stood agonisingly offside.
Chelsea responded in clinical fashion two minutes later when Abraham doubled the home side’s lead.
The clinical striker towered over Adarabioyo to head a looping effort back across goal and into the net via the post.
The home side extended their advantage to three goals in the 73rd minute when Tomori powered home from Mount’s cross.
City responded well to that goal and reduced the deficit 14 minutes later. Brahim was initially denied by Nathan Baxter before a quickly taken corner resulted in the Spaniard poking home.
The young Blues looked for a second immediately but couldn’t find their way through the Chelsea defence and the hosts were crowned FA Youth Cup champions for the third year in a row.