The Belarusian tamed the fourth seed 7-6(2), 6-4 in one hour and 42 minutes on Rod Laver Arena to avenge her defeat by the American teenager in last year's US Open final.
She will play either Chinese 12th seed Zheng Qinwen or Ukrainian qualifier Dayana Yastremska in Saturday's final.
By beating Gauff, the 25-year-old became the first player since Serena Williams in 2016 and 2017 to reach back-to-back Australian Open finals.
No one since Victoria Azarenka in 2013 has mounted a successful women's title defence at Melbourne Park.
Sabalenka said ahead of the match that she was motivated by revenge after the 19-year-old beat her in three sets at Flushing Meadows.
But it proved to be her toughest assignment at the tournament so far, having dropped just 16 games leading into the clash.
"I was able to focus on myself. I was prepared that she was going to move well and put all the balls back and I was just ready for anything," she said.
"That was the key, and the support here."
"It's always a great fight (against Gauff). She's a great player and I enjoy playing her," she added. "I really hope that in the future we are going to play many more finals."
With the roof closed due to rain, Sabalenka raced through her opening serve to love then promptly broke Gauff, who opened with two double faults and won just one point in the first two games.
The American woke up and got back in the contest immediately with Sabalenka shanking two volleys on her next serve, opening the door for a break.
But Gauff's serve again deserted her, with two more double faults in the sixth game handing the Belarusian another break point that she converted with a net volley.
Sabalenka was in control at 5-2, but inexplicably lost composure to drop four games in a row before breaking back as Gauff served for the set to take it to a tiebreak, which she dominated.
Gauff saved two break points in a crunch 11-minute game to open the second set before the match settled into a more normal rhythm, with eight straight service holds
That all changed in the ninth game when Sabalenka dialled up the pressure, attacking Gauff's second serve to break for 5-4 when the American whipped a backhand wide.
It was the opening she needed, serving out for the win and her second successive appearance in the Melbourne Park final.