The 28-year-old, buoyed by a new-found self-belief inspired by fellow German Steffi Graf, proved too hot to handle for Konta as she won 7-5, 6-2 on Rod Laver Arena.
The win puts the left-hander into her first ever Grand Slam final on her 33rd attempt, marking the first time a German has got so far at Melbourne Park since 1996.
That year, Anke Huber made the final where she lost to Monica Seles. Graf is the last German champion in Melbourne, winning the last of her four Australian titles in 1994.
But Kerber now has a momentous task ahead against a player in awesome form, after defending champion Williams swept past fourth seed Agnieszka Radwanska 6-0, 6-4 in the other semi-final.
Williams' Australian Open finals
- Williams has never lost a final in Melbourne, winning in...
- 2003, 2005, 2007, 2009, 2010, 2015
The German, who is guaranteed to return to the world top five, beat two-time champion Victoria Azarenka in the last eight and the task facing Konta, ranked 47, was always a big ask.
The Briton, who has risen 100 rankings places in the past year, was on her tournament main draw debut having failed to come through qualifying last season.
But her defeat of eighth seed Venus Williams in the opening round gave her a huge boost, and against the odds she kept her run going to become Britain’s first female Grand Slam semi-finalist since 1983.
Konta was bidding to become the first British woman to reach a Grand Slam final since Virginia Wade at Wimbledon in 1977, and the first in Melbourne since Wade in 1972, but it was not to be.
Earlier, an inspired world number one Williams demolished Polish fourth seed Radwanska to surge into her 26th Grand Slam final and zero in on a seventh Australian Open title.
The dominant top seed was untouchable in overpowering the Pole in just 64 minutes.
“I’m really excited to be in another final, it kind of blows my mind right now,” said Williams, 34. “I feel I am playing the best I can, and I can’t believe I am in the final.
“I started playing aggressive again in the second set and it worked out.”