Federer, bidding for his seventh title at the prestigious season-ending event, took just 69 minutes to secure his second Group B win and the world number two will be guaranteed a last four berth if Milos Raonic defeats Andy Murray later on Tuesday, or if Murray beats Raonic in three sets.
At 33, Federer is the oldest player to qualify for the Tour Finals in his 13th consecutive appearance, but he has been in age-defying form over the last three days.
The 17-time Grand Slam champion has defeated Raonic and US Open finalist Nishikori, two of the much-touted next generation of rising stars, without dropping a set and will guarantee top spot in the group, which would bring the added bonus of likely avoiding a semifinal showdown with Novak Djokovic, if he beats Murray on Thursday.
Federer, who last won the Tour Finals in 2011, didn't need to be at his very best against Nishikori, who made 30 unforced errors in a sloppy effort that left him with one win from two matches, damaging his hopes of making the last four ahead of his final group fixture against Raonic.
"I've known Kei since he was 17 years old and always thought he was a great talent," Federer said.
"He's going to have a great future so I'm very pleased with the way I played," he said.
Federer said he was looking forward to playing Murray.
"We've played some of the greatest matches," he said.
"I'm not sure I'm going to be able to watch him tonight though — I've got kids so it's during a time where I usually put everybody to bed!"
Nishikori, the first Asian singles players to make the Tour Finals, grew up idolizing Federer and admitted this week that he was completely overwhelmed by nerves when he first got the chance to play the Swiss legend.
But, aided by new coach Michael Chang, he has finally overcome that hurdle and has beaten more top ten opponents over the last 11 months than in the previous seven years on the ATP Tour.
Nishikori went on to win two of his other three meetings with Federer and had an early chance to take control at the O2 with two break points in the third game.
Federer had other ideas however and battled back to hold serve before landing the first blow himself with a blazing forehand winner to break for a 3-1 lead.
That was all the incentive Federer needed and he cruised through the rest of the first set.
Nishikori called for treatment on his right wrist in the break between sets and, although he was able to continue, there was more bad news when he gifted a break to Federer with a succession of unforced errors in the third game of the second set.
With Federer in businesslike mood there was no chance of a Nishikori comeback and his fate was sealed with a double-fault that gave the Swiss one more break and ended the contest.