Top seed Nadal defeated the 17-time Grand Slam champion 7-6 (7/4), 6-3, 6-3 in a dominant semifinal win lasting two hours and 24 minutes on Rod Laver Arena.
The result means Federer loses the title of best player in Switzerland that he has held since 2001 and it dashed the prospect of an all-Swiss final in Melbourne.
Federer was confident of a better showing, after failing to beat Nadal in Grand Slams since the 2007 Wimbledon final, but the world number one was relentless in taking apart the much-decorated Swiss.
In 33 meetings in their great, if one-sided, rivalry, Nadal now leads Federer 23-10 and has won their last six matches in Slams as well as their last five meetings on all stages.
"I played probably my best match of the tournament. Roger came into the match winning two great matches against (Jo-Wilfried) Tsonga and Andy (Murray)," Nadal said.
"I'm really happy with the way I played tonight. It's a very special moment to have the chance to play in another final."
Nadal, the 2009 champion, will line up in his third Australian final against Wawrinka and he has yet to lose or even drop a set to the Swiss eighth seed in their 12 matches.
"A Grand Slam final is a different kind of match than I played against him in the past. He's playing better than ever. If I don't play my best tennis I am sure that he will win three sets against me," Nadal said.
Nadal is also bidding to win his second Australian Open title and become only the third man along with Roy Emerson and Rod Laver to win each of the four Grand Slam titles twice.
"I think Rafa played well. He's played me this way many times. I'm not sure if I served as good as I could have," a deflated Federer said.
"But then again for the first one-and-a-half hours or so I didn't get broken. It wasn't all that bad."
Nadal, seemingly untroubled by a large blister on his serving hand, progressively got stronger during the semi-final and broke Federer's serve four times, losing his only once.
"We made the tape (on the blister) a little bit smaller and that helped me," he said.
Nadal hit 28 winners to 25 unforced errors, while under-pressure Federer made 50 unforced errors and won just 23 of 42 points he contested at the net.
It will be the Spaniard's 19th Grand Slam final on Sunday, and he will be bidding for his 14th major title to tie American Pete Sampras in joint second place behind Federer on the all-time list.
Federer fought off break points in two service games before taking the opening set to a tiebreaker, but volleying errors cost the Swiss and Nadal cruised to the first set with two set points.
The gap widened in the second set with Nadal ruthless in his groundstrokes and putting Federer under pressure to hold serve in the fourth game, before breaking him with a forehand winner in his next service game.
Whatever Federer sent back over the net, the Spanish world number returned with a vengeance and he ripped a series of stunning forehand winners to take a two-sets-to-love lead.
Both players exchanged service breaks early in the third set but Nadal broke Federer for a second time to lead 4-3 and close in on victory.
Nadal broke Federer again in the ninth game and won on his second match point, and the tournament's four-time winner left the arena with his head bowed.