The Serb struggled to control an aggressive Federer in the first set before overpowering the Swiss in the decider.
Djokovic will face the winner of the Spanish semi-final duel between Rafa Nadal and title holder David Ferrer in Sunday's showpiece match.
Federer, who has slipped down to sixth in the rankings after enduring his worst season in 10 years, broke his opponent's serve in the third game.
Loudly cheered by the packed crowd, the 17-times grand slam champion unsettled Djokovic by attacking the net as often as possible and hitting some sharp groundstrokes.
Federer looked set to qualify for his first Masters Series final this year when he broke Djokovic's again in the opening game of the second set, only to see the Serb strike back to level 1-1.
Federer lost the initiative after errors started to creep into his game and he also struggled with his serve. The Serb broke Federer's serve a second time to lead 4-2 and held on to force a decider.
Djokovic carried the momentum into the third set to book his place in the final.
Both players will meet again next week at the ATP World Tour Finals in London after they were drawn in the round robin same group.
(Reporting by Gregory Blachier; Editing by Pritha Sarkar)
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