In an enthralling semi-final featuring a rain interruption, a lighting failure and plenty of drama, the fifth-seeded Austrian shrugged off a sluggish start and was braver on the big points under the roof at Rod Laver Arena.
Watch: The moment Dominic Thiem made maiden Australian Open final
The 26-year-old Thiem, twice a runner-up to Rafael Nadal at the French Open, will take on seven-time Australian Open champion Djokovic on Sunday after a marathon three-and-a-half-hour tussle with Zverev.
"It's unbelievable - I've twice played Rafa Nadal in Roland Garros finals. I'm now facing Novak here: he's the king of Australia,” said Thiem of the prospect of meeting Djokovic.
I'm always facing the kings of these Grand Slams. I'll try everything to win.
"I'm looking forward and will try to recover well."
The Austrian recovered from a dire first set - where 13 unforced errors and just five winners contributed to three breaks of his service – to reach a third Grand Slam final of his career.
Thiem ousts Zverev to reach Australian Open final
Thiem sealed sets three and four on tiebreaks, despite his opponent’s superior serving acumen, after he began to take control of the match from the baseline, finishing the match with 43 winners.
"Both of us could have won this today," Thiem, who dumped Nadal from the quarter-finals, said on court.
"Maybe (I have) a little bit of experience, little bit of something else. He's just 22, maybe not long before he makes it to his first Grand Slam final.
‘Unbelievable! Point of the match!’ – Zverev comes out on top in exceptional exchange
"It was an unreal match, again two tiebreaks, so tough and so close. It was almost impossible to break him."
With the men's Grand Slams dominated for years by the 'Big Three' of Djokovic, Nadal and Roger Federer, Thiem will bid to become the first man born in the 1990s to win a major title when he takes on the second seed Djokovic.
As first-time Melbourne semi-finalists, both players were in uncharted territory and nine breaks of serve in the first three sets betrayed their nerves.
After a brief rain delay, Thiem, who looked to be still shaking off his four-hour 10-minute slog against Nadal, dropped the first set in a flurry of unforced errors.
Thiem nudged ahead to 5-3 in a madcap second set laden with sparkling rallies and a few bone-headed shots from each.
‘Wasn’t remotely close!’ – Zverev rushes smash, misses by a long way
In an outrageous game of net-rushing, botched overhead smashes and thumping groundstrokes, Thiem fought off two break points before blasting an ace down the 'T' to take the set and level the match.
The pair had literally shot the lights out, and play was halted for a second time early in the third set due to roof lamps failing.
After a seven-minute pause, the circus tricks resumed, with Thiem ripping a backhand past Zverev to take his serve.
Though thrown around the court by Thiem's power, the young German hung tough, claiming a spell-binding rally with a searing pass after Thiem had dived like a goalkeeper for a volley.
Zverev broke back with some superb tennis but his line call challenges were appalling. He blew his quota by the ninth game and with frustration spilling over, he earned a code violation for an audible obscenity.
The frustration mounted as Thiem saved two set points then raced away in the tiebreak, converting it with a sumptuous backhand winner from an absurd angle.
There was no glorious dash to the finish line, with the final set a grind but Thiem was majestic in the tiebreak to earn another chance to rock the Grand Slam establishment.
Wilander likens 'complete player' Thiem to Federer
Mats Wilander was effusive in his praise for Dominic Thiem following the match, comparing the 26-year-old to Roger Federer.
Seven-time Grand Slam champion Wilander, speaking in the Eurosport studio on Game, Schett and Mats, said that he was impressed with the fifth seed's patience, adding that Thiem, who has lost the last two French Open finals to Rafael Nadal, had become a more complete player.
Wilander: Thiem becoming a complete player
“I was really impressed by Dominic Thiem’s patience at times, coming forward and mixing it up with variety,” began Wilander.
I mean he really is the complete tennis player – a little bit a la Roger Federer in his tactics.
Thiem recovered from a sluggish first set – where he was broken three times – to dominate the big moments of the match under the roof of the Rod Laver Arena, and Wilander a three-time winner of the Australian Open, also praised Thiem's courage.
“I think Thiem wins this match because he is a little gutsier from the baseline, and he plays a little more aggressively,” said Wilander.