The Japanese native bested her idol with a 6-3, 6-4 win with fans in the stands for the first time in Melbourne after the city was placed under a five-day snap COVID-19 lockdown earlier in the week.
The match, however, got off to a bad start for the No. 3 player in the world as she dropped the first two games to the No. 10 player.
"I hit a lot of unforced errors in the first few games," Osaka said in an interview after the match. "I was just really nervous and scared I think in the beginning and then I sort of eased my way into it."
Osaka would take the next five games straight, and from there on out it was relatively smooth play for the 23-year-old while Williams showed visible frustration with her own game.
In the end, Williams committed 24 unforced errors and six return unforced errors to Osaka's 21 and 1, respectively.
"It was a big error day for me today," Williams said in an emotional press conference after the game.
The 39-year-old American told reporters that she had opportunities but wasn't able to capitalize on them due to the errors she committed.
"Just made too many mistakes there, easy mistakes," she said.
Before leaving the court, Williams gave a prolonged wave to a standing ovation and when asked if she was saying farewell, she became chocked up and attempted to answer further questions before leaving in tears.
After the match, Osaka said it is always an honor to play against Williams.
"I was a little kid watching her play and just to be on the court playing against her for me is a dream," she said.
The defeat for Williams keeps that elusive 24th Grand Slam, which she's been chasing since 2017, out of reach for now.
Osaka advanced to the semis earlier in the week when she downed Su-wei Hsieh in straight sets while Williams had knocked off Simona Halep in straight sets as well.
For Osaka, who is a three-time major champion, she will now take on No. 22 Jennifer Brady, 24, in the finals on Saturday after she beat No. 25 Karolina Muchova later on Thursday.
Osaka is undefeated in Grand Slam finals, winning titles in each of her appearances to the quarterfinals and she'll be going up against a first-time finalist on Saturday as Brady has gotten that far.
Asked if her experience will be beneficial, Osaka replied that a first appearance is a mix of excitement and nervous.
"I don't want to wish nerves on someone," she said while laughing, "but hopefully one of them gets nervous."