Murray, the second seed, earlier registered just his second ever win over Rafael Nadal on clay to make the final with a 7-5 6-4 victory.
Djokovic has yet to drop a set in the Spanish capital this week but he was nearly caught cold by the windy conditions as he had to battle back from 0-40 down in the first game with some fine serving yesterday.
The Serb slowly began to find his rhythm and broke through in the eighth game as Nishikori pulled a forehand wide before serving out for the set.
However, the top seed bounced back to take the breaker 7-4 and set up his first meeting with Murray in a Masters series final on clay.
Djokovic will look to extend his 22-9 head-to-head record against Murray, exactly 10 years on from their very first encounter in the Madrid third round.
Murray's only previous win over Nadal on clay also came in Madrid in last year's final.
"I think it was a better win for me this year than last year," said Murray.
"Not loads of players have won against Rafa on clay throughout his career.
"To beat him in Spain on a clay court is obviously a big, big challenge for any player.
Nadal admitted Murray had been the better player on the
big points after missing out on 11 of 13 break points.
"He made the difference with his serve. I didn't play my best, but I also didn't play badly. I was at a middling level which wasn't enough to beat Murray."
Nadal had come from a set down to beat Murray in the semi-finals of Monte Carlo and was forced to try to do the same again as the Scot edged a tight first set.
The world number two surrendered a 5-2 lead, but responded perfectly by breaking the Nadal serve to love with a searing forehand return winner to take the set 7-5.
"When he had opportunities, I think I served pretty well in a lot of them, and also was trying to play sort of aggressive, offensive tennis at those moments.
"I wasn't backing off at all. So I was very pleased with that. Obviously when you play the best players they are going to create chances.
"You have to be able to respond when they do create the chances positively and I think I did that today."
However, the Spaniard couldn't back up the break as he dumped a smash into the net to bring up two more match points and then also found the net with a regulation forehand to hand Murray victory in just over two hours on court.
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