The world number three will move back to the top of the WTA rankings with a win in Saturday's final against either Kiki Bertens or Sloane Stephens.
Two-time Madrid winner Halep broke the unseeded Bencic in the first game of the first set, the Swiss's errant reverse flying out, but she broke back to tie at 2-2.
The Romanian's down-the-line shot sealed another break in the penultimate game and she served out to win it comfortably in 27 minutes.
Halep won virtually all of the long rallies, but Bencic reacted well at the start of the second set, playing more aggressively.
Bencic broke to go 3-1, enjoying a stroke of luck with a shot that clipped the net and dropped just over.
Halep battled back, earning a tiebreak, but Bencic won it comfortably to force a deciding set, although she immediately started to struggle.
At three games down, she cried during the break, visibly emotional, with Halep immediately breaking for 4-0 when play resumed, going on to wrap up the set and the match with ease.
"It's a nice feeling to be back in the final of this special tournament, I'm really happy playing here," said Halep.
"In the second set in that tie break I was rushing too much, I lost control of it, but then I just calmed down, told myself I had to start the match again.
"I started to play smarter, opened the court more and became more aggressive."
(Reporting by Rik Sharma; Editing by Christian Radnedge)
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