Williams sisters to play each other in Australian Open
Thirteenth seed Venus, 36, beat fellow American Coco Vandeweghe 6-7 (3-7) 6-2 6-3 to reach her first major final since 2009.
World number two Serena, 35, saw off unseeded Croat Mirjana Lucic-Baroni 6-2 6-1 in the second semi-final.
Serena is attempting to win an Open-era record 23rd Grand Slam singles title.
It would also be a seventh Australian Open victory for the younger Williams sister, while Venus hopes to win an eighth major title, first in Melbourne and first since Wimbledon in 2008.
Saturday will be their first Grand Slam final against each other since Wimbledon 2009 when Serena won in straight sets.
“It is unbelievable to watch Serena play tennis – the way she hits the ball and the competitor she is,” Venus Williams said after the first semi-final.
“It would be a dream to see her on the opposite side of the net on Saturday.”
Speaking after her win, Serena said: “I am really proud of Venus – she is a total inspiration. I am really happy for her and to be in the final together is a dream for us.
“She is my toughest opponent, no-one has ever beaten me as much as Venus.
“I feel no matter what that we have both won after all we have been through. I know a Williams is going to win this tournament.”
Vandeweghe, 25, had played superbly in seeing off world number one Angelique Kerber and French Open champion Garbine Muguruza to reach the last four, but she could not maintain that level in the semi-final.
The world number 35 deservedly took the first set on a tie-break but it was the experience of Williams that eventually prevailed.
Williams converted four of five break points, but more importantly reduced Vandeweghe to just one from 13 as the younger American was reduced to throwing her racquet in frustration as the chances slipped by.
Two double faults handed Williams a decisive double break in the second set and the seven-time Grand Slam champion broke again at the start of the third.
Vandeweghe stayed close enough to keep the pressure on, saving three match points before finally cracking with an error on the fourth, prompting a jubilant twirl of celebration from Williams.
“Everyone has their moment in the sun. Maybe mine has gone on a little longer than other people, but I have nothing else to do,” joked Williams.
Lucic-Baroni was playing her first Grand Slam semi-final for 18 years, but it only lasted 50 minutes as Serena Williams dominated in her 34th major semi-final.
It was their third meeting but their first since 1998, when the pair were teenagers.
The story of Lucic-Baroni’s comeback from a series of personal issues that saw her career all but finished had captured the attention, and she ended the tournament by taking a selfie with the crowd on her way out of Rod Laver Arena.
“Mirjana is an inspiration and deserves all the credit today,” said Williams. “To get so far after all she has been through inspires me and I wanted to give her all the congratulations.
“It is great to see her out here. I was rooting for her through the whole tournament.”
Williams will return on Saturday to try to make history once again by surpassing Steffi Graf and winning a 23rd major singles title.
Once she broke Lucic-Baroni’s serve in the third game there was only going to be one winner, runs of five straight games and six straight games bringing her each set.
“The serve was a little better today. I want it to be a little better. I knew it needed to be good because Mirjana is a great returner,” added Williams. BBC