A day after defending champion and top seed Angelique Kerber fell by the wayside, Williams overcame Barbora Strycova 7-5, 6-4 to set up a last-eight clash with Britain's Johanna Konta.
The American great would gain much from winning in Melbourne, as she would overtake Steffi Graf's Open-era record of 22 Grand Slam titles and end Kerber's short reign as world number one.
In hot conditions, she fought off the tenacious Strycova in two tight sets, following her sister Venus into the quarter-finals and staying on track for a possible all-Williams final.
Konta, the ninth seed, also reached the last eight with a perfect record in sets after a convincing 6-1, 6-4 victory over Russia's Ekaterina Makarova.
Despite the task facing her, Konta was delighted to be playing Williams, a childhood idol, for what would be her second straight Australian Open semi-final.
"I'm really looking forward to the challenge, and I'm looking forward to being on court, out on court with her and competing against her," said the 25-year-old.
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Meanwhile Mirjana Lucic-Baroni wrote another chapter in her fairytale career revival when she beat American qualifier Jennifer Brady 6-4, 6-2 to reach her first Grand Slam quarter-final in 18 years.
The former teen prodigy, now 34, won the 1998 Australian Open women's doubles with Martina Hingis but she fled her abusive father and suffered a series of injuries to put her career on hold.
Her joy was unbridled at beating Brady as she reached the last eight at a major for the first time since 1999, when she lost to Graf at Wimbledon aged 17.
"I am a tough little cookie and really stubborn, when I want something I will work hard and do anything I need to get it. What a satisfaction."
Lucic-Baroni will play her quarter-final against US Open finalist Karolina Pliskova, who ended home hopes with a 6-3, 6-3 win over Australia's Daria Gavrilova.
In the men's draw, David Goffin put away Austria's Dominic Thiem 5-7, 7-6 (7/4), 6-2, 6-2 to become the first Belgian man ever to reach the men's quarter-finals.
Goffin will play next Grigor Dimitrov, who halted the fairytale run of Denis Istomin, the 117th-ranked Uzbek wildcard who shocked defending champion Novak Djokovic in round two.
Glasses-wearing Istomin won the first set but injury problems set in and he went down 2-6, 7-6 (7/2), 6-2, 6-1 to the in-form Bulgarian.
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