It was the latest disappointment at this indoor hard-court event for Nadal, whose best result came in 2007 when he lost in the final to Argentine David Nalbandian.
Nadal chose not to play at the recommendation of on-court doctors after sustaining an abdominal injury, according to the ATP Tour's website.
"We can call it unlucky, we can call it different things, but it happened today. And when things happen, the only thing that you can do is to accept it. And even if it's a tough situation for me, I need to stay positive," Nadal was quoted as saying.
"Finishing out like this is always a very negative thing, but the rest of the things of the week have been very positive," he added.
Despite the setback, Nadal will reclaim the No. 1 ranking on Monday for the first time since late last year. But the injury casts doubt on the Spaniard's prospects of securing the year-end No. 1 ranking for the fourth time in his career, as that will be decided at the elite, year-end ATP Finals in London from November 10-17.
"I hope to be ready for London. That's the biggest goal right now," Nadal said.
The Spaniard's exit sent the 20-year-old Shapovalov into his second career final and his first at an ATP Masters 1000 event.
The Canadian's opponent will be Djokovic, who has been No. 1 the entire season and reached the 50th Masters 1000 final of his career with a 7-6 (7-5), 6-4 victory over in-form Bulgarian Grigor Dimitrov in Saturday's first semifinal.
On Sunday, the Serbian great will seek his 34th Masters 1000 title, which would put him one shy of Nadal's record tally of 35.
The first set stayed on serve until the tie-breaker, in which Dimitrov grabbed a mini-break lead.
But trailing 3-3, Djokovic leveraged his baseline superiority to win the final four points of the set and get the momentum fully on his side.
The Serbian, who did not face a single break point in the match, remained unplayable on serve in the second set and snagged a crucial break in the fifth game.
"It's a motivation (to win my fifth Paris title) every day. I feel good in such conditions, especially in France. You have the culture of tennis," Djokovic, who lost in last year's final to Russia's Karen Khachanov, was quoted as saying on the ATP Tour's website.
"I want to do well tomorrow. I hope to find my best tennis," he added.
The Serbian defeated Shapovalov 6-3, 6-3 in his opening match at last month's Shanghai Masters, but said that he has noticed the recent improvements in the budding star's game.
"I think Denis has reduced his unforced errors. His game has always been there, and especially this year, he's improved even more," Djokovic said.
Shapovalov, who reached (and won) his first ATP Tour final in October in Stockholm, has started to produce more consistent results under the tutelage of new coach Mikhail Youzhny.
( With inputs from IANS )