Ferrer, seeded sixth, handed the top seed only his third loss at the tournament a day after Nadal had won his 300th clay match of his career and 50th at the Monte Carlo Country Club.
Ferrer came to the court with a 5-21 deficit against his compatriot, whose form has dropped this season.
He will now face off on Saturday against Australian Open winner Stanislas Wawrinka, who beat Nadal in that grand slam final and booked his place 7-6 (7/5), 6-2 over Canadian Milos Raonic.
Prior to that final, he had won eight straight editions.
Nadal was well off the boil from the start in a contest where the opening set took 75 minutes and the third game required a quarter of an hour.
The top seed ended his quest with a forehand to the net, his 44th unforced error.
Ferrer battled his nerves as he served for victory leading 5-2, but was broken. On his second chance, the 32-year-old got the job done after two hours, 11 minutes.
Wawrinka, who had a walkover in the previous round when Spain's Nicolas Almagro pulled out with a foot injury, took control as Canadian Raonic twice lost leads in the opening set tie-breaker.
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