Nalbandian, who beat Nadal in last year's final, downed Nicolas Kiefer of Germany 7-6 (5), 6-3 to set up another meeting with fellow Argentine Juan Martin del Potro.
Nadal topped Florent Serra of France 6-2, 6-4 and next faces No. 16 Gael Monfils of France.
"(Monfils) is playing very well this year, and I have to play my best tennis if I want to have chances to win tomorrow,'' Nadal said. "He can play aggressive, sometimes he play defensive, two meters behind the baseline. He can do something different.''
Nadal took only 27 minutes to win the first set before Serra rallied briefly, forcing Nadal to save a break point in the fourth game of the second set.
Sixth-seeded Nikolay Davydenko, who won here in 2006, advanced with a 7-6 (5), 7-5 win over Ivan Ljubicic of Croatia. He will play 2005 champion Tomas Berdych of the Czech Republic, who beat No. 12 Stanislas Wawrinka 6-3, 7-5.
No. 13 Jo-Wilfried Tsonga of France rallied to beat 2004 runner-up Radek Stepanek 3-6, 6-4, 6-4 and next faces No. 3 Novak Djokovic of Serbia.
Kiefer saved two match points before the eighth-seeded Nalbandian served out the match with an ace to secure a third matchup this month against the ninth-seeded Del Potro. Nalbandian beat Del Potro in the semifinals of the Swiss Indoors last week after losing to him in the third round of the Madrid Masters the week before.
"This is going to be the third time in three weeks, so that is a little bit strange,'' Nalbandian said of facing del Potro again. "It's going to be a tough one, we both know each other very well.''
Also, 10th-seeded Gilles Simon advanced 6-3, 7-5 past Igor Andreev to keep alive his chances of reaching the season-ending Masters Cup in Shanghai, which is reserved for the top eight players in the ATP race.
The Frenchman next faces seventh-seeded Andy Roddick of the United States, who is also vying for a Masters Cup spot.
Simon and Roddick both took a step closer to qualifying after No. 5 David Ferrer of Spain lost 6-3, 6-2 to Germany's Philipp Kohlschreiber in Wednesday's play.
Marin Cilic of Croatia also advanced to the third round with a 6-4, 7-6 (2) win over Marcel Granollers of Spain.
Usain Bolt Is A Blanco
Del Potro advances at Paris Masters
Nalbandian through to 3rd round at Paris Masters
Italy And France To Host 24 Team Euro 2016?
