The Austrian fell behind but triumphed 3-6, 6-4, 7-6 (3), 7-6 (4) after three hours and 42 minutes on court to set up a clash with Novak Djokovic.
Timea Babos and Kristina Mladenovic overcame Su-Wei Hsieh and Barbora Strycova in the women's doubles final to become the first major title winners in Melbourne this year.
The final of the mixed doubles was set as Bethanie Mattek-Sands and Jamie Murray beat Astra Sharma and John-Patrick Smith to book their place.
So too did Barbora Krejcikova and Nikola Mektic, who saw off Gabriela Dabrowski and Henri Kontinen in their semi-final.
Men's Singles Semi-Finals
(5) Dominic Thiem bt. (7) Alexander Zverev, 3-6, 6-4, 7-6 (3), 7-6 (4)
Women's Doubles Final
(2) Timea Babos/Kristina Mladenovic bt. (1) Su-Wei Hsieh/Barbora Strycova, 6-2, 6-1
Mixed Doubles Semi-Finals
Bethanie Mattek-Sands/Jamie Murray bt. Astra Sharma/John-Patrick Smith, 6-3, 7-6 (4)
(5) Barbora Krejcikova/Nikola Mektic bt. (3) Gabriela Dabrowski/Henri Kontinen, 3-6, 6-3 (10-5)
Zverev and Thiem set the tone straight away on Friday as they exchanged breaks in the opening two games of the first set.
It did not take long for that set to go Zverev's way, though, as Thiem made 13 unforced errors, allowing the German to break his serve twice more.
The Austrian improved significantly in the second, breaking early and again immediately after Zverev had pulled level midway through.
Thiem missed the chance to go a double-break up in the third when he failed to convert a break point at 3-1. It almost cost him when he found himself 5-4 down and facing two set points, but he saved them both and battled back to force a tiebreaker, which he won with a pair of superb forehand winners.
The pair stalemated to another tiebreaker in the fourth after a tight set in which neither faced a break point.
Once again Thiem came out on top, helped on his way by an early double-fault and an unforced error from Zverev.
Babos and Mladenovic dropped just three games in their final against Hsieh and Strycova, despite their opponents being the No. 1 seeds in the tournament.
The duo claimed their second Australian Open title in their third Melbourne final in a row, having won it in 2018 and lost it to Samantha Stosur and Zhang Shuai last year.
It marked their third Grand Slam title together overall, following their triumph at the French Open last year.
Mattek-Sands and Murray could win their 10th and eighth Grand Slam doubles titles, respectively, if they can get past Krejcikova and Mektic on Saturday.