Sinner recovered after failing to take a match point in the tie-break, and Serbia’s 36-year-old Djokovic lost 6-1 6-2 6-7 (6-8) 6-3.
It ends Djokovic’s attempt to advance past Margaret Court with a record-tying 11th title and a 25th major.
In the Sunday final, Sinner, 22, will compete against either German sixth seed Alexander Zverev or Russian third seed Daniil Medvedev.
The second semi-final at Melbourne Park on Friday will feature Zverev, who is going for his first Grand Slam victory, and former US Open champion Medvedev.
It is anticipated that the two will exit Rod Laver Arena soon after 19:30 local time (08:30).
With Sinner’s defeat of Djokovic, the Australian Open men’s singles trophy will bear a new name.
Since falling to Chung Hyeon in the fourth round six years prior, the Serb had won thirty-three straight games in Melbourne.
Achieving a Melbourne singles final is Sinner’s first Italian accomplishment. “It was very, very tough,” Sinner said.
“I persisted because I thought [Djokovic] wasn’t feeling well. I simply tried to prepare for the fourth set, which I performed incredibly well in the beginning.
Reaction to Sinner’s victory and real-time Medvedev vs. Zverev text updates
In the mixed doubles final, Skupski and Krawczyk lose.
