Federer took just 60 minutes to down the eighth-seeded Austrian 6-1, 6-4 and said afterwards it was the best he had played all week.
“I’m getting used to conditions, which is usually the case after a couple of matches,” he said.
“You understand the speeds more and you’re more comfortable. Plus I’m definitely also feeling a bit better now.
“I was very pleased with how I played. I think it was the best match of the week so far, or most consistent maybe.”
The first set lasted just 22 minutes as a shell-shocked Thiem struggled to match the 17-time Grand Slam champion on Pat Rafter Arena.
Thiem, 22, settled into the match in the second set and took the fight to his 34-year-old opponent, but a lapse in the seventh game saw him drop his serve and Federer easily held on to book a place in the final.
Federer lost to Lleyton Hewitt in the 2014 title-decider and beat Canadian Milos Raonic to win the title last year.
Sunday’s final will be a rematch of 2015 after the huge-serving Raonic edged local hero Bernard Tomic in two close sets.
“I played some tough matches (against him) in the last, I don’t know, I guess 16 months or so,” Federer said of Raonic.
“I thought he played really well against me here and Indian Wells last year.
“So he’s been looking good, you know. Clearly with a serve like that things are always complicated.”
The big-serving Raonic hit 13 aces on his way to a 7-6 (7/5), 7-6 (7/5) win in one hour, 47 minutes.
Tomic had his chances against Raonic, and had four break points in the fifth game of the first set.
But Raonic served his way out of danger and neither man was troubled on his own serve thereafter.
With such a huge serve Raonic was always favoured in the tie-breaks and he opened a 5-1 lead on both occasions.
Tomic fought back to 5-5 twice but in the end Raonic closed out the match with a lunging backhand volley.
Raonic pushed Federer in three close sets in 2015 and although he said he was playing better now than 12 months ago, he conceded facing the Swiss great was always difficult.
“He can do a lot of things differently,” Raonic said.
“You know what you want to do against him and what you should do (but) he can just make this part difficult for you.
“Each time he can come out playing in different ways and he’s able to do a lot of different things.
“But what I need to do is very clear for myself,” he added.
“So that’s what I’m going to strive for and try to play it on my terms as much as possible, rather than his.”