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Osaka ended Williams' bid for a record-equalling 24th Grand Slam title in a storm of power hitting on Thursday, humbling the American great 6-3 6-4 to reach her second Australian Open final.
In a rematch of their tumultuous 2018 US Open decider, Osaka (23) underlined her status as the new queen of women's tennis and soaked up the cheers from the Rod Laver Arena crowd in Melbourne as fans returned to the Grand Slam after a five-day lockdown.
Three-times Grand Slam champion Osaka will meet the winner of Jennifer Brady and Karolina Muchova in the title match.
"I did a lot of unforced errors in the first few games. I was really nervous and scared in the beginning and then I sort of eased my way into it," said Osaka on court.
"It's just always an honour to play her and I just didn't want to go out really dud. I just wanted to try my best."
Williams broke Osaka in the opening game, but the Japanese third seed reeled off five straight games in a devastating display before closing out the set with a blazing forehand winner.
Osaka took Williams' serve in the first game of the second set and would not let up until she wobbled with three double-faults to allow the American to break back to 4-4.
But Williams repaid the favour with a double-fault on the next service game giving Osaka three break points.
Osaka converted the first then closed out the match when Williams thudded into the net.
Later, Williams broke down in tears before cutting short her post-match news conference.
"It was a big error day for me today," the 39-year-old told reporters.
Asked if it was just a bad day at the office, Williams said: "I don't know. I'm done," before leaving the room in tears.
Nadal's bid for a record 21st Grand Slam title also came crashing to a halt as Tsitsipas dug deep to topple the Spaniard 3-6 2-6 7-6(4) 6-4 7-5 and reach the semi-finals on Wednesday.
World number two Nadal had not lost a set coming into the evening clash at Rod Laver Arena and was locked on target for the last four at Melbourne Park after roaring to a two-set lead over the listless Greek.
But the match turned on its head when Nadal wavered in a messy third set tiebreak, and a rejuvenated Tsitsipas rallied brilliantly to take the match into a decider.
Capturing Nadal's serve at 5-5 in the fifth, Tsitsipas saw two match points slip through his fingers on serve but he kept his head and fired a scintillating backhand winner down the line on the third to claim one of his finest career victories.
"Of course (I'm) sad. I lost a match in quarter-finals of an event that means a lot to me," Nadal told reporters.
"I tried my best in every single moment ... I think I stayed positive all the time during the match, fighting, and it was not enough. Sometimes it's enough, today was not enough."
Fifth seed Tsitsipas booked his second Australian Open semi-final and will meet Russian juggernaut Daniil Medvedev for a place in the decider.
"I have no words to describe what just happened on court. My tennis speaks out for itself. It's an unbelievable feeling to be able to fight on such level, just to be able to leave my all out on court," the 22-year-old said.