Dimitrov rolled to a 6-2, 6-4 victory over the second-seeded Nadal to end a seven-match losing streak to the Spaniard. It marks the third Top-10 victory for the Bulgarian this season.
"I'm pretty happy with that win," Dimitrov said. "I'm not going to lie. I've played Rafa quite a few times. So many times I was close or a couple of times I was cramping. There was just always something happening. Today, I just played an excellent match. Simple as that. I'm proud. A lot of the work is paying off."
Nadal was displeased with his early exit but was aware that he was outplayed.
"It's obvious that Grigor played much better than me and he deserved to win. Losing five-serve games is something you can't do to win a match like this," Nadal said. "I fought until the last ball, but was going against psychologically bad feelings because I was suffering with my serve. When that happens, you have to go to the next tournament because you don't deserve to win like this."
Dimitrov next faces third-seeded Milos Raonic of Canada. Raonic was a 6-4, 6-4 winner over Spain's Pablo Carreno Busta.
Top-seeded Andy Murray reached the semifinals with a 7-6 (9), 6-2 victory over fellow Englishman Kyle Edmund. Murray will face Spain's David Ferrer. The fifth-seeded Ferrer was a 6-7 (4), 6-1, 7-5 winner over Germany's Alexander Zverev.
Murray prevailed in a tightly contested tiebreaker in the first set and then controlled the set while finishing off Edmund.
"I know how good he is and the power that he has on the court," Murray said. "I knew it was going to be a hard match today, he'd come though qualifying here and had a good win in the last round. He's playing really well and will be up at the top of the game soon.
"The first set was very tough and I was down an early break in the second. He generates a lot of power on the forehand side, it's one of the bigger weapons in tennis just now and that will continue to develop over the next few years the more matches he plays."
Murray's semifinal opponent, Ferrer, is looking to reach his first final since of the year. Ferrer has lost six consecutive matches against Murray.
Raonic is bouncing back strong from a recent stretch of second-round defeats, including at the U.S. Open.
David Goffin was manhandled in the opening set before reversing course and rallying to dispatch Portugal's Joao Sousa 1-6, 7-5, 6-2 to reach the semifinals of the Japan Open at Tokyo.
Goffin and Cilic are meeting for just the third time. Goffin won both meetings -- at Indian Wells early this year and in a Davis Cup match between Belgium and Croatia.
"That was when I played my best tennis this year," Goffin said. "I can play fast against him and he doesn't like that, because he's a big guy and he doesn't like to run. If I'm returning well, he struggles a bit."
Also reaching the semifinals were Australian Nick Kyrgios and France's Gael Monfils. The sixth-seeded Kyrgios swept Luxembourg's Gilles Muller 6-4, 6-2 while the second-seeded Monfils outlasted Croatia's Ivo Karlovic 7-6 (6), 7-6 (6).
"It's always difficult to play Ivo, there aren't many opportunities," Monfils said. "A bit like today, I'm going to have to be patient tomorrow."