The number five seed defeated Zverev 3-6, 6-4, 7-6(3), 7-6(4) in a nail-biting contest lasting three hours and 42 minutes at Rod Laver Arena, becoming the first Austrian to reach the Australian Open final, reports Efe news.
His 22-year-old German opponent started off impressively breaking his adversary and racing away to a lead, but the latter fought back to draw level at 3-3 before rains came down to suspend play on Friday.
The number seven seed resumed after the break with greater force, winning 10 points straight, going on to lead 3-5 and closing the set on Thiem's serve.
The second set saw the two players trade breaks to keep up with one another.
Soon Thiem, 26, found himself serving for the set at 5-4, where he saved two break points before clinching it with an ace.
The next set started evenly at 1-1 before he sped ahead and came close to making it 4-1, but Zverev dug in and fought back and went 4-5, before Thiem saved two set points on serve.
The third set pushed into a tie-breaker, where the older player was more dominant and polished it off with a backhand cross-court winner, concluding a set lasting 82 minutes.
The fourth set also went neck-to-neck, with Zverev showing all the resilience to stay alive in the match and Thiem determined to wrap things up, as it once again dragged into a tie-break.
Zverev let his nerves get the better of him at that stage as he committed a double fault at 0/1, and the 26-year-old took full advantage of the lapse in his opponent's momentum to secure a 5/3 lead, before going on to seal the match with a forehand winner.
Throughout the match, there was little to separate the two players in terms of skill and gameplay, but it was Thiem who managed to win the important points and that is what made the difference in the end.
He hit 43 winners and fired 10 aces, while committing 40 unforced errors to Zverev's 42 winners, 15 aces and 33 unforced errors.
"It was an unreal match, two tie-breaks, so tough and so close," Thiem said in an on-court interview, after securing a place in what will be his third Grand Slam final on Sunday.
He finished runners-up to world number one Rafael Nadal, from Spain, at the French Open in 2018 and 2019.
"I have been twice in the Roland Garros final, twice facing Rafa, and now I am facing Djokovic, he is the 'King of Australia', winning seven titles here," said Thiem.
"I will try my best and do everything I can to win."
Djokovic, who has 16 Grand Slam titles to his name, has a 6-4 edge over Thiem in ATP head-to-head series.
( With inputs from IANS )