Stefan Bradl, who earned his maiden MotoGP front row start after qualifying in second place on the LCR Honda, finished 12 seconds behind Lorenzo in sixth position.
Alvaro Bautista took seventh on the Gresini Honda by les than a second from the CRT machine of Aleix Espargaro on the Power Electronics Aspar, who lived up to his promise in qualifying to finish eighth.
Espargaro finished 1.3s ahead of Tech 3 Yamaha's Bradley Smith, who started from the second row in sixth place, while Andrea Dovizioso
came out on top of a race-long duel with his Ducati team-mate Nicky Hayden
to claim 10th place.
Pedrosa shot into the lead at the first corner from Bradl, Marquez and Rossi as Crutchlow failed to make the most of his pole start.
Bradl quickly dropped down the order as he was passed first by Marquez and then Rossi, with Lorenzo moving into sixth position ahead of Bradley Smith at the start of lap two.
Crutchlow also made up a place, passing Bradl on lap two to take fourth behind Pedrosa, Marquez and Rossi with Lorenzo gaining another position, moving ahead of Bradl into fifth after starting from 12th place on the grid.
Pedrosa, Marquez and Rossi began to edge away at the front from Crutchlow and Lorenzo.
At the end of the fourth lap, Rossi snatched second from Marquez with a smooth pass at the chicane and set a fastest lap of 1m 34.894s to reel in Pedrosa, making a similar move on the brakes at the chicane to hit the front much to the delight of the huge Assen crowd.
Lorenzo was on the move as he passed Crutchlow for fourth and began to close on Marquez, but the defending world champion was unable to sustain his challenge and lost fourth place to Crutchlow with 12 laps remaining.
Marquez caught and passed Pedrosa at the chicane with nine laps to go and set off in pursuit of Rossi, but the Italian MotoGP legend responded in style to stretch his lead from 1.1s to 1.5s on the next lap.
Rossi was in charge and Marquez soon came under threat from Crutchlow, who also edged ahead of the slowing Pedrosa with five laps to go.
Lorenzo was safe in fifth ahead of Bradl, Bautista, and Espargaro.
Crutchlow was finishing the race strongly and began to attack Marquez three laps from the end.