Nadal had been a clear favourite to face Djokovic in Sunday's showpiece at Caja Magica but the 17-time Grand Slam champion extended his stuttering build-up to the French Open with another surprise defeat.
Tsitsipas' stunning victory on Saturday means he reaches his fourth ATP final of the season while fully vindicating those that have him circled as a future star of the men's game.
"Emotionally it was very tough, it was one of my toughest wins," he said.
It might be too early to expect the world number nine to challenge at Roland Garros later this month but, with a fearless style and formidable forehand, Tsitsipas is developing a habit for delivering on the big stage.
In terms of career wins, this perhaps trails only his ousting of Roger Federer from the Australian Open in January, when he went on to reach the semi-finals for his best run yet at a Grand Slam.
But, as well as Federer and Nadal, Tsitsipas has now beaten Alexander Zverev and Dominic Thiem, both twice, and Djokovic, whom he played on hard in Canada last year and prevailed in three sets.
He will draw confidence from that result ahead of Sunday's final but arguably even more so from overcoming Nadal, on clay, which Djokovic had earlier described as the "ultimate challenge" following his own 7-6 (7/2) 7-6 (7/4) victory over Dominic Thiem.
By his own high standards, Nadal's clay-court swing has been disappointing. He lost in the last four in both Monte Carlo and Barcelona, arriving in Madrid without winning either tournament for the first time since 2015.
"It's a lost chance," admitted five-time champion Nadal after his third straight semi-final defeat on clay.