Tsitsipas had never won a set in his previous three meetings against claycourt specialist and 11-times French Open champion Nadal, but the Greek drew first blood by saving a break point to hold in the 10th game and take the first set.
An erratic Novak Djokovic suffered a surprise 6-3, 4-6, 6-2 defeat against the 10th-seeded Russian Daniil Medvedev in the Monte Carlo Masters quarter-finals.
Failing to win his 850th match, the top seed Serb lost to 22nd-seeded Roberto Bautista Agut 1-6, 7-5, 6-3.
Swiss player Roger Federer overcomes Stefanos Tsitsipas 6-4 6-4 in Dubai final.
World number one tennis player Novak Djokovic crowned a winning return to the courts after surgery with the Laureus sportsman of the year award, while American gymnast Simone Biles won the sportswoman of the year prize.
With his seventh victory from as many finals at Melbourne Park, the 31-year-old Serb moved past Roger Federer and Roy Emerson, who have six Australian Open titles each.
Alexander Zverev claimed the biggest title of his career with a 6-4, 6-3 upset on Sunday, becoming the youngest champion of the season-ending event since Djokovic claimed the first of his five titles a decade ago — also at age 21.
In the last eight weeks the 31-year-old Serbian has resembled the Grand Slam machine that held all four major titles at the same time in 2016, winning three of his last four events including Wimbledon and the US Open.
Madison Keys clinched her second consecutive semifinal berth by beating Carla Suarez Navarro 6-4 6-3 while Novak Djokovic beat Australian John Millman 6-3 6-4 6-4.
Djokovic, who had come off second best in five previous Cincinnati finals, defeated seven-time winner Roger Federer 6-4, 6-4 in the final.
Stefano Tsitsipas downed Wimbldon finalist Kevin Anderson in three sets to set up a meeting on his 20th birthday with Rafael Nadal,
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