The Spaniard won 6-3 5-7 7-6 (7-5) 6-7 (4-7) 6-4 in four hours and 56 minutes.
Nadal who qualified will now take on Roger Federer in a much anticipated final on Sunday.
“First of all, I am tired. Grigor was playing unbelievable. it was a great match. I am very happy to be part of it, the crowd was amazing. Many thanks for the huge support, the last two weeks have been unforgettable for me,” he said afterwards.
“When you work hard and have tough moments like last year, I never dreamed to be back in the Australian Open after a lot of months without competing.
“I hope to recover well and for me it is a privilege. It is a special thing for both of us to be able to compete against each other in a major final.
“I think we both thought that we wouldn't be back in major finals.”
This year's Australian Open, is also the first time we will see Venus Williams vs Serena Williams and Federer vs Nadalin Grand Slam finals, since Wimbledon finals weekend in 2008.