Nadal is now on an unbeaten run of 14 matches and is looking to win his fifth title here at Madrid while Thiem is looking to win his second title of the year.
Nadal tied Novak Djokovic for the all-time lead in Masters 1000 titles with 30.
But battle-hardened Nadal prevailed with his fifth set point having already saved two of Thiem's.
The 30-year-old Nadal rode momentum to break in the first game of the second set, and Thiem fought to the end. The 14-time Grand Slam victor should be heading into the match high on confidence as he had beaten Thiem 6-4, 6-1 in the final of Barcelona only last month, which was also his third win over the world number nine in four meetings on clay. "I played well in the first set and although I had a few nerves in the second, that was because I have not beaten him for so long", Nadal said after his victory.
His fourth win over Thiem in five meetings was confirmed after two hours and 17 minutes as his forehand began to fire in scenes reminiscent of his glory days of years gone by. Nadal is now 52-8 in all clay-court finals. "I will try to improve the things I didn't do that good in Barcelona and then we will see what happens". But in December or January, I was not expecting to play badly, because I knew I was doing a very good off-season.
Nadal receives 1,000 Emirates ATP Rankings points and is expected to climb to No. 4 in the Emirates ATP Rankings, surpassing Federer. "I really enjoy these tournaments", Nadal said.
"I am aware that if I am fit and I can play well, I have the capacity to win important titles and achieve my goals", said Nadal.
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"The level was definitely very high today I thought from both players", Djokovic said.
At the time of writing this piece (Friday), World Number 2 Novak Djokovic is set to take on Kei Nishikori in the first quarter-final of the ongoing Madrid Masters.
Djokovic will either renew his rivalry with Rafael Nadal or face Belgium's David Goffin in the last four on Saturday.
Despite the loss, Cuevas can be pleased with reaching his first Masters 1000 semi-final.
Four-time champion Nadal rediscovered his ruthless streak and ended a three-year, seven-match losing streak against Djokovic to progress to the final two.
Thiem is still in the early stages of what promises to be a superb career and the Austrian held sway early on, unleashing a string of punishing ground strokes to break the Nadal serve. They are very important tournaments for me. 'I got a break in the first game. He also beat Djokovic in Monte Carlo where he made the semis.
Indeed Djokovic could only muster four points in the opening four games as Nadal raced into a 4-0 lead. I think what is logical is to go to Rome, try to give 100 per cent.