Also, Spanish veteran Fernando Verdasco beat Donald Young of the United States 6-3, 6-3 and Jiri Vezely of the Czech Republic eliminated Daniel Evans of Britain 6-3, 6-1.
Four-time champion Nadal rediscovered his ruthless streak and ended a three-year, seven-match losing streak against Djokovic to progress to the final two.
It adds to titles Nadal has won in Monte Carlo and Barcelona and he will play in Rome this week before turning his attention to a quest for a 10th French Open title in Paris. The Spaniard backed up the strong performance with another championship on Sunday. "I'm very happy at the moment", said Thiem.
Nadal had to battle early and battle late to avoid dropping a set to the Austrian.
The clay court king was taken to the wire by world No.9 Thiem as a tie breaker was needed to separate the men in the first set.
The Austrian held, and saved two more set points in the first-set tiebreaker. The Spaniard converted his fifth set point of the match to take that tiebreaker and go one set up. "I want to fight again in every match". I'm expecting the best Djokovic tomorrow.
The wayward form of Djokovic continued in the third game, two more errors, and an off-forehand victor from Nadal, and it was another break, and if that had thrilled the Spanish fans, a love hold, made with a smash and a forehand victor, had them in a state of euphoria. But again it was not easy. The first game of the second set suggested not: two dire misses and it was break point, and a netted forehand finished it off.
Djokovic hasn't played in the semifinals of any event since winning the title in Doha at the beginning of the year.
"This is a very emotional period of the season", Nadal told reporters. "I wasn't building any points really". I just try to focus. "I did well in Monte Carlo and Barcelona, and also here". "I hope you understand and respect that". He withdrew from Barcelona last month because of a right wrist injury.
Nadal knows there are reasons to be cautios, but he appears unwilling to give up his chance to pick up more momentum at Rome next week.
He's made the quarter-finals at the Foro Italico in each of the last two seasons with wins over Jo-Wilfried Tsonga, Leonardo Mayer, Sock and Tomas Berdych (the latter 6-0 6-0).
Thiem, 23, was playing in his first Masters 1000 final but broke first for a 2-1 lead in the first set as he dictated play from the middle of the court.
Nadal, a four-time victor in the Spanish capital, will prove a much sterner examination following his stunning straight-sets success over holder Novak Djokovic. I'm 31 years old. The clear favorite for Roland Garros and having accomplished all of his immediate goals, the question now becomes if Nadal, at nearly 31, even plays Rome or elects to rest. "That's the joy that keeps you going, that keeps you alive".
The title is Nadal's fifth in the capital of his homeland and sees him move level with Novak Djokovic on 30 ATP 1000 crowns, a record he could claim outright if he can triumph in Rome next week.