Federer never faced a break point in his 7-6 (9-7), 7-4 (7-4) triumph over Rusedski. The 20-year-old Swede has had to earn his return trip to the finals after rallying to beat Sargis Sargsian of Armenia in three sets Friday.
"I was very consistent today, especially on my serve," Federer said. "I was ready at the right time with the right shots. The first set was very close. In the second set I felt I was the better player, but it still came down to the tiebreak."
Federer, who won in Sydney the first week of the year, improved to 13-1 in 2002.
"I was hoping to have a great start to the year," he said. "It happened in 2001 as well and that carried through the whole year."
If Federer is to capture his third career title, he will have to find a way to bounce Sanguinetti, the immensely popular hometown favorite.
Sanguinetti looked like anything but a potential finalist midway through his match with France's Nicolas Escude. Sanguinetti dropped the first set, but rebounded for a 3-6, 6-3, 6-2 victory.
The 29-year-old Sanguinetti, who has never won an ATP singles title, will be participating in the fourth final of his career. Earlier in the tournament, he defeated top seed Juan Carlos Ferrero of Spain and fifth seed Younes El Aynaoui of Morocco.
"I'm so happy to be in the final of a tournament in Italy. The crowd really helped me today," Sanguinetti said. "It's almost like a dream. I've played well on other occasions, but never as consistently as this week."