Third seed Ferrer, who won his first Masters Series title in Paris last year, will face Novak Djokovic in the final of the indoor event on Sunday after the Serb earlier subdued Roger Federer 4-6 6-3 6-2 in the battle of the former world number ones.
Ferrer, who entered his match with a 4-20 win-loss record against Nadal but had won their previous encounter on hard courts, at the 2011 Australian Open, dominated from the first point to the last.
He began aggressively, forcing Nadal to defend and breaking his opponent's serve in the fourth game.
Nadal regrouped and created three break chances in the second game of the second set, only to see Ferrer level at 1-1 and then take advantage of one of the top seed's numerous errors to lead 2-1.
Nadal threatened to record a great comeback when he levelled at 5-5, but Ferrer broke immediately and wrapped up the match on his first chance with a powerful groundstroke.
"That might have been my best performance of the season," he told Spanish television broadcaster Teledeporte.
"I played a very complete match and I knew that to beat Rafa I had to give my best. Maybe he started a bit nervously with more errors than usual, but the second set was really tough.
"It was a big blow when I couldn't serve out the match at 5-4. You can't afford to let opportunities slip against Rafa. In the key moments you always have more self-doubt, but I just tried to put that game behind me and refocus."
Power had also made the difference earlier on Saturday as 2009 champion Djokovic defeated Federer despite struggling to control the brilliant Swiss early on.
Federer, who has slipped to sixth in the rankings after enduring his worst season in 10 years, broke his opponent's serve in the third game.
Loudly cheered by the packed crowd, the 17-times grand slam champion unsettled Djokovic by attacking the net as often as possible and hitting some sharp groundstrokes.
Federer looked set to qualify for his first Masters Series final this year when he broke Djokovic again in the opening game of the second set, but the Serb hit back for 1-1.
Federer lost the initiative after errors began to creep into his game and he also struggled with his serve. Djokovic broke Federer's serve a second time to lead 4-2 and he carried the momentum through the deciding set.
Both players will meet again next week at the ATP World Tour Finals in London after they were drawn on Saturday in the same round-robin group.