Rafael Nadal overcame fierce resistance from American Robbi Ginepri to book a fifth Masters Series final of the year with a 7-5, 7-6 victory.
The 19-year-old Spaniard will meet in-form Croatian Ivan Ljubicic in Sunday's final after Ljubicic extended his winning run to 16 matches with a 6-3, 3-6, 6-3 victory over fifth seed David Nalbandian.
Nadal will equal world number one Roger Federer's haul of four Masters Series titles this year if he beats Ljubicic.
Federer missed the tournament through injury.
"I'm delighted," said world number two Nadal. "It's incredible to be in another final and even more special to do it here in Madrid in front of my fans."
Ljubicic, who came to Madrid after back-to-back titles in Metz and Vienna, recognised he had a daunting task on his hands to beat Nadal on home soil.
"I know everyone will be against me tomorrow but I'm going to make sure I enjoy the match and hopefully I'll win," he said.
Nadal's victory was his 78th of the year, one more than world number one Roger Federer and the most by a teenager since Mats Wilander won 82 in 1983.
The two powerfully built players, meeting for the first time, spent the opening games sizing each other up but Nadal soon warmed to the task and forced errors from the U.S. Open semi-finalist.
The young Mallorcan retrieved a seemingly impossible drop shot and responded with a magnificent winning pass in the opening point of the seventh game and went on to earn himself a break to lead 4-3.
Ginepri broke straight back and blasted through another service game to lead 5-4.
Nadal broke again in the 11th game after forcing two successive errors from his opponent and then served out to clinch the set.
CONCENTRATION LAPSE
A lapse in concentration by 16th seed Ginepri allowed Nadal to snatch a break in the seventh game of the second set but the American got back on level terms to force a tiebreak.
He was swept aside, however, Nadal racing through it 7-1 to the delight of a pumped up capacity crowd at the Madrid Arena.
"My attitude was good, but I just didn't win the big points," said Ginepri, who beat third seed Nikolay Davydenko on the way to the semi-final.
"I didn't feel as though I played my best tennis and it was a real shame about the tiebreak."
The American paid tribute to his opponent.
"He's unbelievably quick round the court and fights for every point," Ginepri said. "He won't ever give up, he's just a fighter."
Ljubicic and Nalbandian withstood some early pressure on their serves, but Argentine Nalbandian cracked when his opponent took advantage of a forehand error to break in the sixth game.
An early break in the second game of the second set was all Nalbandian needed to level the match.
It was level pegging in the third as the two players traded crisp groundstrokes, but it was Ljubicic who found an extra gear to forge ahead.
Nalbandian saved three match points at 5-3 down but eventually relented under the pressure of the Ljubicic serve.