Sinner provided a master class in tennis in the opening two sets to put the wheels in motion for Djokovic's only defeat in the semi-finals of his favourite major.
It also made the youngster the only Italian player to reach an Australian Open singles final.
In marking the arrival of a new generation of tennis stars, the Melbourne title clash on Sunday will also be the first since 2005 not to feature Djokovic or fellow "Big Three" members Roger Federer and Rafa Nadal.
"It was a very, very tough match," said Sinner, who did not face a single break point in the match.
"I started out very well, for two sets I felt that he was not feeling too good on court so I just tried to keep pushing and then in the third set I had match point and I missed the forehand, but you know, this is tennis.
"I just tried to be ready for the next set, which I started off really well, and of course the atmosphere was so great. It's so great to play here."
Fourth seed Sinner stunned Djokovic twice in three matches at the end of last season and he made a rollicking start on Rod Laver Arena by targeting his 36-year-old opponent's shaky serve and error-prone backhand to comfortably win the opening set.
Djokovic had not lost at his favourite stomping ground since the 2018 edition when he crashed to South Korean Chung Hyeon and there were worrying signs for the 10-times Melbourne champion as the 22-year-old Sinner eased through the next set following a double break.
"He outplayed me completely today," Djokovic said. "I was shocked with my level in a bad way. Not much that I was doing right... This is one of the worst Grand Slam matches I have played, that I can remember.
"At the same time, credit to him for doing everything better than me in every aspect of the game."
The Sinner tsunami showed no signs of subsiding in the third set but Djokovic raised his game to remain firm until 5-5 in the tiebreak, when a break in play after a fan fell ill threatened to upset the momentum of both players.
Djokovic won the game on a net cord to inch closer to taking the set but Sinner showed superb racket control with an overhead smash to force a tiebreak, only to squander a match point at 6-5 by hitting a forehand into the net.
Djokovic claimed the next three points to pull a set back, drawing loud cheers from spectators.
But Sinner broke for a 3-1 lead in the fourth set and pulled away to snap the Serb's 33-match winning run at Melbourne Park and end his quest for a record 25th major.
"I was looking forward to this match, it's always nice to have this kind of player where you can learn from," Sinner said.
"I lost (to him) last year in the semis at Wimbledon, I learned a lot from that, and it's all part of the process."
Victory meant that Sinner has now defeated Djokovic at the ATP Finals, the Davis Cup and in a Grand Slam.
"I don't know, ask him," Sinner said with a laugh when asked why his game was so difficult for Djokovic.
"We play similar and first of all you have to try and return as many balls as possible. He's such an incredible server, and I just try to guess sometimes, you know, trying to push, trying to move him around a little bit.
"I'm not going to give you the tactics because I hope I'm going to play him in a couple of different matches."
Sinner said he was riding the wave of confidence from last year and looked forward to Sunday's final, where he will play Daniil Medvedev or Alexander Zverev.
"I have the belief that I can play the best players in the world. On Sunday, I'm in my first final. Let's see how it goes. I'm really happy, I'll come here with a smile and try my best.
"I'll watch it (the next semi-final) for sure, I'm a huge tennis fan. I'm a bit more relaxed now. They're such incredible players and have played so many times. It's going to be really interesting."
