Osaka, a three-time major champion, advances to face first-time Grand Slam finalist Jennifer Brady, who defeated Karolina Muchova in the other women's semifinal.
Novak Djokovic easily dispatched Russian qualifier Aslan Karatsev to kick off the men's semifinals. He'll face either Daniil Medvedev or Stefanos Tsitsipas in the final. They play Friday in Melbourne.
Thursday's Australian Open Results
(1) Novak Djokovic d. Aslan Karatsev; 6-3, 6-4, 6-2
(3) Naomi Osaka d. (10) Serena Williams; 6-3, 6-4
(22) Jennifer Brady d. (25) Karolína Muchova; 6-4, 3-6, 6-4
Williams' play had steadily improved throughout the season's first major, highlighted by a lopsided victory over second-seeded Simona Halep in the quarterfinals, but she was no match for Osaka on Thursday.
The 23-year-old Japanese sensation overwhelmed her legendary 39-year-old American counterpart in pretty much every facet of the match. She held advantages in both aces (6-3) and winners (20-12), a rarity for a Williams opponent, and also tallied three fewer unforced errors (21-24).
"I think honestly for me it's always an honor to play her, and I just don't want to go out really bad so I just wanted to try my best," Osaka told reporters. "I was a little kid watching her play. Just to be on the court playing her is a dream."
Williams, who took an extra moment to soak in the ovation from the Melbourne Park crowd before she walked off the court, provided a coy answer about her future before ending her press conference early while fighting back tears, per ESPN's D'Arcy Maine.
"I don't know," she said. "If I ever say farewell, I wouldn't tell anyone."
Williams remains one of the best players in the world, but Thursday's loss to Osaka may have been an eye-opener about how hard it will be to win major titles as the next generation of stars reach their peak.
Meanwhile, Brady didn't deliver her most efficient match in the semifinals, recording almost double the number of unforced errors (38) as winners (20) and capturing just 25 percent of her return points.
She struck eight aces, however, and converted all three of her break chances, including one in the third set to put her in position to win. She fought off three break opportunities for Muchova in the final game to punch her ticket to the final.
Brady, 25, had never advanced beyond the fourth round of a major before the 2020 U.S. Open, but now she's reached the semifinals and the championship match in back-to-back Grand Slam events.
Osaka will be the favorite in the final, but Brady's power gives her a chance to pull the upset if she can improve that winner-to-error ratio Saturday.
On the men's side, Djokovic is in the catbird seat after making quick work of Karatsev ahead of an extra day off compared to the other semifinalists before the title match.
The 33-year-old Serb is seeking his ninth Australian Open title and his 18th Grand Slam championship, which would move him within two of tying the all-time mark of 20, held jointly by longtime rivals Roger Federer and Rafael Nadal.
Djokovic never appeared threatened in the semifinal, owning an advantage over Karatsev in almost every major statistical category. The top seed posted 30 winners and 17 aces with just 14 unforced errors.
Karatsev, who upset No. 8 Diego Schwartzman, No. 18 Grigor Dimitrov and No. 20 Felix Auger-Aliassime during his journey to the semifinals, couldn't generate enough free points off his first serve with just six aces, and it led to six breaks against him.
Djokovic can now sit back and watch as Medvedev and Tsitsipas play what should be a far more competitive semifinal Friday.