The Danish second seed pumped her right fist in celebration after sealing victory in one hour 38 minutes when her Polish opponent, seeded fifth, hit a forehand wide to be broken for a fifth time.
Wozniacki, who is projected to climb to a career-high second when the world rankings are released on Monday, trailed 15-40 on Radwanska's serve in the final game before winning the last four points.
"I played consistent and tried to be aggressive," Wozniacki told reporters after reaching her first WTA final of the year.
"We know each other so well. Agnieszka is a great fighter and she doesn't give up. I knew I had to fight till the last point to win this match," she added.
The 19-year-old Wozniacki will take on Jelena Jankovic in Sunday's final, the sixth-seeded Serb having cruised past Australian Samantha Stosur 6-2, 6-4 earlier in the day.
"Jelena is a great player, a former world number one, and it's going to be a tough match," Wozniacki said.
Jankovic broke her opponent twice in each set to wrap up her win in one hour 28 minutes on a hot afternoon at the Indian Wells Tennis Garden.
Eighth-seeded Stosur had not dropped a set on her way to the last four but struggled for rhythm against her higher-ranked opponent, piling up 36 unforced errors and four double faults.
MISTIMED FOREHAND
The match ended when the Australian mistimed a forehand service return which flew skywards and Jankovic celebrated reaching her first WTA final of the year.
"I'm feeling good, going to the finals," the smiling world number nine said.
"I had some tough matches here and some good wins. Samantha has an unbelievable serve, one of the best in the women's game, and I was able to return a lot of her first serves. I was putting a lot of pressure on her second serve," Jankovic added.
"So I think that was the key, because I was able to break her quite a few times. And then it made everything easier for me."
Although bitterly disappointed by her performance against Jankovic, Stosur was happy with her overall display at Indian Wells and is expected to break into the top 10 for the first time when the rankings are issued on Monday.
"Try and look at the positives," the Australian said after losing to the Serb for a third successive time.
"It was a great week, but today I definitely didn't play anywhere close to as well as I can.
"Really, I just got frustrated and wasn't able to pull it back. When you're a set down against a quality player, it's always tough to come back," she added.