Melzer beat last year's runner-up Potito Starace 6-4, 6-7 (8), 6-3 on Saturday to reach his first final of the year, and Del Potro defeated Victor Hanescu 6-3, 7-6 (5).
The 19-year-old Del Potro will play his second career final, just one week after the Argentine won his first title in Stuttgart, Germany. Del Potro is 2-0 against Melzer after beating him in a 2007 Davis Cup match and in the second round of last year's U.S. Open.
"It's fantastic to be in a final again so soon,'' said Del Potro, who could become the fifth Argentine winner of the clay-court event in the last six years. "I beat Jurgen twice before but that doesn't mean anything as this is a different surface.''
Sunday's final of the 63rd edition will be the last at Kitzbuehel, which is not included in the ATP calendar next year.
"It would be really great for me to become the last winner of Kitzbuehel,'' said Melzer, whose only other ATP Tour title came in Bucarest, Romania, in 2006.
The sixth-seeded Melzer played serve-and-volley to put pressure on Starace's baseline game.
"I decided to play an attacking game and that worked out very well,'' Melzer said. "It was hard for him to keep the ball in play.''
The fourth-seeded Italian lost serve in the opening games of the first two sets, but broke back when Melzer served for the match at 5-4 in the second.
Starace saved a match point before winning the tiebreaker. He went a break up in the third set but Melzer used two breaks to complete the victory.
The seventh-seeded Del Potro used powerful serves and strong groundstrokes to dominate the opening set against Hanescu, who won his first ATP title in Gstaad, Switzerland, last week.
Del Potro fought off three break points to take the second set into a tiebreaker, where he converted his third match point with a service winner.
Del Potro, Gasquet reach final in Stuttgart
Löw suspended
