The German, a four-times world champion with Red Bull who leads Hamilton by 25 points, lapped the sun-bathed island circuit in one minute, 12.572 seconds.
He was just 0.292 quicker than Finnish team mate and Monaco Grand Prix polesitter Kimi Raikkonen.
Hamilton, a five times winner at the Circuit Gilles Villeneuve, was third quickest in 1:12.926 but the Briton could not match the Ferrari drivers, who have led final practise in five of the last six race weekends.
Red Bull crashed the Ferrari/Mercedes monopoly at the top of the timesheets with Dutch teenager Max Verstappen going fourth fastest ahead of Hamilton's team mate Valtteri Bottas.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
Renault's Nico Hulkenberg was sixth best.
With the exception of Friday's first practise, the Ferraris have stayed ahead of Hamilton, who will be bidding to start from pole position for a third straight year and match Michael Schumacher's record six Canadian poles.
The struggles continued at McLaren although Spanish double world champion Fernando Alonso, back from his Indianapolis 500 adventure, managed the 12th fastest time. Belgian team mate Stoffel Vandoorne was 16th.
Pressure has been mounting on McLaren's engine partner Honda to deliver on promised improvements to the power unit but none have been ready for Montreal and the team continues to languish down the timesheets.
It was also another disappointing day for Canadian teenager Lance Stroll, who was unable to get a boost from the home crowd and managed only the 18th best time of 20 cars. Brazilian team mate Felipe Massa was seventh.
(Editing by Alan Baldwin)
