Williams, looking to win her sixth Aussie Open title, took out fellow American Madison Keys 7-6 (7-5), 6-2 to reach the final.
With the first set all tied at 5-5, Williams was on serve when Keys went up 30-15 in the game, but Williams took the next three points before Keys smashed a backhand down the line to knot it up at 40-40. Williams ended up taking the next two points to win the game, then Keys kept the back-and-forth affair going with an ace to force a tiebreak.
Williams had set point, up 6-3, in the tiebreak when Keys fired two aces to close within one, but Williams countered with an ace on her next serve to take the set.
Williams pressured her opponent from the onset of the second set, taking the first game and breaking Keys in the process. However, Keys maintained composure and went up 40-15 in the next game, but Williams ended up grinding her way back and taking the game. After the two maintained serve over the next two games, Williams broke Keys again and eased her way to the finish.
This was the first career meeting between Williams and Keys.
The 33-yard-old Williams seeks her 19th grand slam championship and 65th career title overall. She is 5-0 in Australian Open finals.
Sharapova reached her 10th career grand slam final after beating countrymate Ekaterina Makarova in straight sets.
Sharapova, seeded No. 2 behind Williams, rolled to a 6-3, 6-2 win over the 10th-seeded Makarova in 87 minutes.
The 2008 Australian Open champion double-faulted seven times but fired 23 winners and three aces in the win.
She has won 22 of her last 23 matches against fellow Russians and improved to 6-0 lifetime against Makarova, including 3-0 at the Australian Open following quarterfinals wins in 2012 and 2013.
Chasing her sixth grand slam title and 35th career win, the 27-year-old Sharapova moved on to face the winner of Thursday's all-American semifinal between Williams and Madison Keyes.
Sharapova is 5-4 in grand slam finals, including 1-2 at the Australian Open.
Makarova, 26, made her second consecutive grand slam semifinal. She lost to Williams at last year's U.S. Open.