Djokovic tried to help Serbia stage a comeback in their semifinal against Argentina despite a lingering back problem, but had to retire when trailing 7-6 (5), 3-0 against Juan Martin del Potro. That sent Argentina into the final against Spain, which advanced after Nadal routed Jo-Wilfried Tsonga 6-0, 6-2, 6-4 on clay in Cordoba.
"I feel disappointed to end this tie this way," Djokovic said. "My condition was 60 percent of what I had expected."
Argentina ended up winning 3-2 after Serbia's Janko Tipsarevic took the final meaningless match when Juan Monaco retired after losing the first set 6-2. Spain completed a 4-1 win after Fernando Verdasco beat Richard Gasquet in the final match.
Djokovic didn't play at all on Friday, pulling out of the opening singles because his back had not recovered sufficiently from the injury he sustained during Monday's U.S. Open final victory over Nadal.
But with Serbia trailing 2-1 going into the final day, the top-ranked Serb decided to give it a try. Instead, he fell to the floor with back pains while trying to return a forehand during the final point of the third game in the second set.
"I'm sad for him and wish him fast recovery," Del Potro said. "He has everything to keep the No. 1 position."
It seems injuries are about the only thing that can stop Djokovic this year. He entered the weekend with a 64-2 record, having won three majors. One of those two losses came when he had to retire with a sore shoulder against Andy Murray in the Cincinnati final last month.
The only player to beat Djokovic was Roger Federer, in the French Open semifinals. Nadal certainly hasn't been able to, losing all six of his finals against the Serb in 2011. The Spaniard was unusually blunt when he said this week he'd rather face Argentina than Serbia in the final.
Nadal also complained of fatigue after the grueling U.S. Open final, but unlike Djokovic he showed no symptoms this weekend.
After a similarly impressive victory against Richard Gasquet on Friday, Nadal dominated the 10th-ranked Tsonga at Cordoba's bullring to give the hosts a chance at a third title in four years. Playing in temperatures hovering above 86 degrees all weekend, Nadal dropped just 10 games in two matches.
"Simply put, Rafa was just too good this weekend," Tsonga said. "He's the best player ever on clay court, I think, he's practically unbeatable on this surface and today we didn't create the exception."
Nadal improved to 14-0 on clay in Davis Cup and 18-1 overall, his only loss coming on his debut. Nadal has already won three Davis Cup titles and will lead Spain into its sixth final since 2000 and eighth overall.
"You might think it gets easier to win but it doesn't," Nadal said. "Thanks to the excellent relations inside the team, the Spanish players have stayed united over the years to keep winning."
The final will take place in Spain with Valencia and Madrid reportedly interested in hosting the event.