Nadal, a 12-time grand slam champion, won a thrilling contest under the lights 6-4 3-6 7-6(2) to set up a title showdown with local hope Milos Raonic.
It was Nadal's second successive victory over Djokovic at this stage of a tournament following their epic French Open meeting in June.
"Beating the best player in the world, here, is a big result for me," Nadal told reporters.
"I knew when I arrived after one month off, when you play in a Masters 1000, hard court, a fast surface, you can go out in the first round. But the real thing was completely different.
"I played a very high level ... I made the right decisions in the important moments."
Djokovic had taken an imposing recent hard-court record against Nadal into the match, having won their last four finals on the surface.
"I said yesterday the only chance to win against Novak, I have to play aggressive. If not, I cannot play very well on this kind of surface. And I did," Nadal added.
Djokovic had described his quarter-final win over Richard Gasquet on Friday "as close to perfection" as he could get.
The Serbian, however, could not rediscover that level of performance and was left scratching his head at the difference.
"I made a lot of unforced errors when I had chances, you know, in the rallies. A lot of easy forehands that I missed," a perplexed Djokovic said.
"You can't afford that when you're playing against Rafa. You know he doesn't give you many chances."
Djokovic and the defending champion Briton Andy Murray will be the favourites at the year's final grand slam, the U.S. Open, which follows next week's Cincinnati Masters.
Nadal's battling performance on his return to North America after missing out at the same stage last year because of injury should have Djokovic at least contemplating another chance to lock horns on the sport's biggest stages.
"We push each other to the limit of our tennis," Nadal said.
"That makes possible these kind of matches when both of us, we are playing at a good level."
(Editing by Peter Rutherford)
