Serbia's world number one defeated Nadal 7-6 (7-5) 6-2 for a
10th win in their last 11 meetings.
Djokovic needed to save a set point in the opener but gradually turned on the power against the Spaniard.
Earlier, Raonic had to work hard to beat Belgium's David Goffin 6-3 3-6 6-3 to reach his 17th career ATP final.
The Canadian, who is now the world number 14, sent down 10 aces against Goffin, who had beaten French Open champion Stan Wawrinka on his way to the last four.
He roared through the first set in 34 minutes but struggled with his serve in the second before recovering his composure with an early break in the decider to help seal victory.
"I feel even when I am not playing my best I am able to find the answers," said Raonic, who is coming back after six weeks off with a torn thigh muscle.
"I am definitely able to play at a higher level this year and when a crisis occurs during a match I can find the solutions better.
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