Williams will face Vera Zvonareva, who beat Olympic champion Elena Dementieva 7-6 (7), 3-6, 6-3 in the other semifinal at the WTA Tour's season-ending event.
Williams saved five break points before winning a grueling service game in the third set to go up 4-2. That game also featured a 26-stroke rally, the longest of the 2-hour, 11-minute match. She went on to clinch the victory with a backhand crosscourt winner on her first match point.
"My game is about being aggressive and taking chances,'' Williams said. "Today, I really needed to put a lot more balls in play.''
The American played dominating tennis in the first set, but made more errors in the second as Jankovic dictated play with her aggression. She broke Williams to lead 4-2, and closed out the set with relative ease.
The eighth-ranked Williams improved her record against Jankovic to 4-5. Despite the loss, the Serb will end the year at No. 1.
"I can go to vacation with a smile on my face,'' Jankovic said. "It will be really weird not to have my rackets with me.''
The ninth-ranked Zvonareva, the lowest-ranked player in the eight-woman field, improved to 2-4 against Dementieva and avenged her semifinal loss at the Beijing Olympics.
"I knew I had to start to play good every single match,'' Zvonareva said. "I didn't have any expectations.''
Zvonareva frustrated Dementieva with solid groundstrokes in the final set and capitalized on a string of errors by her opponent to win the last game at love.
Zvonareva recovered from a 1-4 deficit in the first set. In the tiebreaker, Dementieva rallied from 5-1 down and lost a set point before hitting a backhand wide on Zvonareva's second set point. The Russians broke each other four times in the first set.
Dementieva also had a 4-1 lead in the second set, and this time held onto it to even the match. She said Zvonareva was a dangerous player.
"You have to put pressure all the time,'' Dementieva said.
The tournament featured eight players divided into two groups, with the top two in each group advancing to the elimination stage.
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