The Chinese Taipei world number two beat the Indian 21-16 21-16 in the quarterfinal, extending her head to head record to 12-5.
This was Sindhu's second consecutive loss to Tzu Ying. She had lost to her at the quarterfinals of the French open in October last year.
Sindhu was erratic in the start, failing to capitalise on her leads and eventually lost the first game 16-21 to hand a 1-0 advantage to Tzu Ying.
In the second game, Sindhu could do little as Tzu Ying completely dominated the proceedings from start to end.
Trailing 11-20, Sindhu saved six match points but it was too late as Tzu Ying sealed the game 21-16.