ROME — The defending champion at the Foro Italico, Djokovic beat Federer 6-2, 7-6 (4). Five-time winner Nadal eliminated fellow Spaniard David Ferrer 7-6 (6), 6-0 in the other semifinal.
Maria Sharapova defeated rising German player Angelique Kerber 6-3, 6-4 and will defend her title against French Open champion Li Na. The Chinese player advanced after Serena Williams withdrew shortly before their semifinal with a lower back injury.
Williams said the back problem affected her game earlier this week. But she said she'll be ready for Roland Garros.
"It was feeling a little stiff and I don't think this is the right moment to force (it)," she said. "I just want to relax and get ready for the next few months. ... This is a good week to get better and I'm confident that I'll be 100 percent."
Djokovic beat Nadal in last year's final, and defeated the Spaniard in an epic Australian Open final in January, which at 5 hours, 53 minutes was the longest Grand Slam championship match. Nadal easily won their last meeting in the Monte Carlo final last month when Djokovic was mourning the death of his grandfather.
Against Federer, Djokovic was cruising until he served for the match at 5-4 in the second. Federer saved a match point with a blazing inside-out forehand crosscourt winner, then converted his first break point of the match to draw even.
However, even with the sell-out crowd of 10,500 doing their best to encourage Federer, the 16-time Grand Slam winner made a series of costly groundstroke errors in the tiebreaker to hand Djokovic the win.
In all, Federer committed more than twice as many unforced errors as Djokovic, 42-20.
Nadal struggled with his backhand but overcame a difficult first set to post his 11th consecutive win on clay over Ferrer.
Nadal won clay titles in Barcelona and Monte Carlo this year before losing in the third round on an experimental blue surface in Madrid last week.
"(It's the) best thing possible (for me) after a fantastic time in Barcelona and Monte Carlo. To keep playing in (a) clay tournament and then in the final without losing a set is something fantastic," Nadal said. "We can forget the tournament of Madrid — that wasn't clay."
With Ferrer picking on his backhand and winning most of the long rallies early, Nadal needed to save seven break points to hold his opening service game.
"(In) the first set it was unbelievable how David set the (tone) with amazing rhythm and aggressive (shots)," Nadal said. "The thing that I tried to do was to keep the score close."
The first set was decided by just two key points. Early on in the tiebreaker, Ferrer was up a mini-break and in control of a point when he attempted a drop shot that landed in the net. Nadal then took control when he ran down a difficult half volley from Ferrer.
Of Nadal's 20 unforced errors in the first, 15 were off backhands.
Sharapova controlled her match with aggressive baseline play, leading 27-9 in winners against the 12th-seeded Kerber.
"It feels good coming back to the place where you have accomplished so much and to be in the position to regain that position," Sharapova said. "I'm happy how I've progressed."
Sharapova has won three of her last five titles on clay, beating top-ranked Victoria Azarenka in the Stuttgart final last month to add to her titles in Rome last year and Strasbourg the year before. The French Open, which starts next weekend, remains the only Grand Slam the Russian has yet to win.
"The most important thing is physically feeling stronger on the court and handling longer rallies and I recover better," Sharapova said of her clay-court game. "I have improved a lot in that department."
At 24, and just a year younger than Sharapova, Kerber won her first career title at the Paris Indoors this year, then took another title in Copenhagen. The German will break into the top 10 for the first time when the WTA rankings are updated on Monday.
It will be Li's second final of 2012 after losing the Sydney championship to Victoria Azarenka. Li beat Sharapova in the semifinals at last year's French Open, while Sharapova won their last meeting in Miami in March.
Williams has a 17-match winning streak. She had won consecutive titles in Charleston, S.C., and Madrid, plus two matches in Fed Cup.
Williams will move up one spot to No. 5 in the rankings on Monday.
Several other players are also nursing injuries.
Azarenka withdrew with a right shoulder injury before her third-round match. Wimbledon champion Petra Kvitova was bothered by an abdominal injury during a quarterfinal loss to Kerber. And Italy's Flavia Pennetta retired with a right wrist injury while trailing Williams 4-0 on Friday.
On the men's side, fourth-ranked Andy Murray skipped last week's Madrid Open with a back problem and said it was still affecting him after a three-set loss to Richard Gasquet in the third round this week.