Nadal defeated Andy Murray 5-7, 6-2, 6-2, 6-4.
Djokovic reached the championship match at the All England Club for the first time by defeating Jo-Wilfried Tsonga 7-6 (4), 6-2, 6-7 (9), 6-3 in a match filled with diving shots by both players on Centre Court.
"Always is tough, really difficult to play against Novak," said Nadal, who has won 20 straight matches at Wimbledon. "He's playing fantastic this year already. He only lost one match during all the season and I lost already four times this year against him.
"So will be really difficult for me, but I think I am playing well and I will try my best as always."
Djokovic, who improved his record to 47-1 this year and is a two-time Australian Open champion, will replace Nadal as the top-ranked player on Monday. Reaching the final at the All England Club was a relief after losing twice at the same stage.
After Tsonga's return on match point sailed out, Djokovic dropped to the ground and lay on his back. A few seconds later, he knelt down and kissed the grass.
"When I finished the match I didn't know how to show my emotions," said Djokovic, who also beat Tsonga in the 2008 Australian Open final. "This is one of those moments where you can't describe it with the words. You remember all your career, all your childhood, everything you worked for that comes true now."
"I've been working all my life for this," Djokovic said. "I've been dreaming about playing the finals of Wimbledon since I started playing tennis when I was 4. To be able to be there on Sunday will probably be the best feeling."
However, Tsonga didn't make this one easy. The 12th-seeded Frenchman went to the turf several times to knock balls back over the net, some landing in and some going long.
"This is the only surface you can really dive, because on the others, if you dive you go directly to the hospital," Tsonga said. "So this is good."
Twice in the third set, both players went down on the same point.
At 1-1 with Tsonga serving, the Frenchman dived to send the ball back toward Djokovic. The Serb then dived to hit a backhand across the net while Tsonga scrambled to his feet just in time to dive again and push a forehand long.
In the seventh game, Djokovic dived to hit a forehand, but Tsonga did the same, sending a forehand winner back over the net.
"When he's in momentum, he can really be unstoppable at times, hitting serves, from the baseline, especially forehands," Djokovic said.
There were more theatrics in the first set.
With Tsonga up a break and serving while leading 3-2, the two players volleyed the ball back and forth until Tsonga dived and hit a winner.
As Djokovic clapped his hand on his racket to acknowledge the acrobatic play and the crowd applauded, Tsonga turned to the Royal Box — which included former Wimbledon champions Bjorn Borg and Goran Ivanisevic — and stretched out his arms to roaring cheers.
"I can beat everybody today, but not Djokovic, because he just played unbelievable," said Tsonga, who came from two sets down to defeat six-time Wimbledon champion Federer in the quarterfinals. "He was everywhere. He returns unbelievable all the time on his baseline, so is tough. That's it."
The biggest roar in the second match came when Nadal sent a backhand into the net to give Murray the first set.
Nearly everyone in the crowd stood and yelled for Murray, who had been trying to become the first British man since Fred Perry in 1936 to win the Wimbledon title.
Nadal hurt his foot in the fourth round, but he again didn't appear to be bothered by the injury. Murray, however, did seem to be less than 100 percent following a hip injury the quarterfinals, and it began to show early in the second set.
"My hip was sore like right at the beginning of the match. After I saw the physio, took like a painkiller, it was fine," Murray said. "I hardly felt my hip after that."
After holding twice for a 2-1 lead, Murray missed an easy forehand that would have given him a break point in the following game. Nadal held and won seven straight games, taking the second set and breaking to open the third.
"He was playing fantastic at the beginning and probably he had an important mistake with 15-30, easy forehand he played long," said Nadal, who had only seven unforced errors in the match to Murray's 42. "So probably that's one of the turning points of the match."
Nadal broke again in the opening game of the fourth, and moved into his fifth Wimbledon final a short time later.
"It was a big point," said Murray, a three-time major runner-up. "I was playing very high-risk tennis for most of the match. I went for it today, and I started to make a few mistakes after that."
The top-seeded Nadal is 20-0 at the All England Club since losing to Federer in the 2007 final. He won the title in 2008, but missed the tournament the following year because of injury. He returned in 2010 and won again.
Murray was playing in the Wimbledon semifinals for the third time, and he lost for the third time. Since Bunny Austin in 1938, British men have lost 11 semifinal matches at the All England Club, including four by Tim Henman in the late 1990s and early 2000s.
Henman was on Centre Court before the match in his role as a television commentator and Roger Taylor, who lost three semifinals in the 1960s and 70s, was in the Royal Box.
"I feel sad for Andy. I think he deserved to be in this final, too," Nadal said. "It's tough for him lose this match today."
Based on reporting by The Associated Press.