He'll face Nicolas Kiefer, who reached the championship with a 6-7 (4), 6-3, 7-6 (5) win over Gilles Simon on Saturday.
Nadal, who won in Toronto in 2005, won the French Open and Wimbledon earlier this year. In three career meetings, he's never dropped a set to Kiefer.
An uncharacteristically aggressive Murray went shot-for-shot with Nadal in the first set, during which both players held serve. It wasn't until the tiebreak that he flinched. Down 2-6, Murray double-faulted on set point.
He still came out strong in the second set. It took 18 points for Nadal to hold serve in the first game, and when Nadal broke Murray in the fourth game, the gangly Briton broke back in the fifth.
"You know, he's definitely doing a lot of things better than he was in the past,'' Murray said. "I think he's moving better on hard courts, and I think he's sort of changing the pace of the ball a little bit more and not playing so far behind the baseline like he did in the past.
"That's why I think he'll be No. 1 in the world soon.''
Nadal was the only player in the top seven seeds to make the semifinals, and heavyweights Roger Federer and Novak Djokovic have already been ousted.
But Nadal seems to be operating on another level right now.
"I played against Andy very good today because he - my opinion - he played one of his best matches against me,'' Nadal said.
Kiefer hasn't won an ATP event since 2000 in Hong Kong and hasn't appeared in a final since 2005 in St. Petersburg.
The match lasted 2 hours, 59 minutes, mostly filled with groundstrokes from the baseline. As he's done all tournament, Simon played patiently, kept the ball in play and waited for Kiefer to make mistakes. And, again, it worked, as Kiefer made 69 unforced errors.
"I didn't play my best tennis, but in the important moments I could pick up my game and I was playing pretty good,'' Kiefer said.
But Simon made a few too many of errors of his own. Up 5-4 in the third set, Simon had a ball gently bounce high in front of him and he primed for an overhead smash, before launching the ball into the bottom of the net.
He finished with 32 unforced errors of his own, and only capitalized on three of 13 break point chances.
Simon won't have to wait long for another crack at Kiefer. They've drawn each other in the first round of next week's ATP tournament at Cincinnati.
"Yeah, the revenge,'' Simon said with a laugh.
In doubles, Toronto's Daniel Nestor and Serbian partner Nenad Zimonjic advanced to the final with a 6-3, 7-6 (5) win over India's Leander Paes and Lukas Dlouhy of the Czech Republic.
The No. 2 seeds will play the winner of the other semifinal, between Americans Mark and Bob Bryan and Australia's Paul Hanley and Jordan Kerr, which was scheduled later Saturday.
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