Nalbandian, the No. 6 seed in Auckland and the 27th-seed for next week's Australian Open, beat the third-seeded American who appeared to be troubled by an arm injury on Thursday.
Isner needed medical treatment to an injury to his upper arm or shoulder but still delivered eight aces and put 78 percent of first serves in play before the steadier Nalbandian ended his title defense.
The tournament's top two seeds, Spaniard's David Ferrer and Nicolas Almagro, also won through to the semifinals in three-set matches.
Nalbandian will play Almagro in the semifinals while Ferrer will take on unseeded Colombian Santiago Giraldo who beat the No.7 seed Thomaz Bellucci of Brazil 6-2, 6-4.
Top-seed Ferrer beat No. 8 seed Philipp Kohlschreiber of Germany 6-3, 6-7 (4), 6-3 in a marathon match between former champions. Ferrer won the Auckland title in 2007 and Kohlschreiber in 2008.
Their clash lasted 153 minutes before Ferrer prevailed, gaining the only service break of the third set. As a measure of it's closeness, there were more than 300 rallies in the match and every game featured, on average, 10 points.
Ferrer forced the only service break of the opening set in the sixth game, and took the first frame after Kohlschreiber had saved three set points.
The Spaniard dropped serve in the fourth game of the second set but got back on level terms in the seventh game and saved two set points in the final game to send the set into a tiebreaker. Kohlschreiber had 37 unforced errors in the first two sets but won the tiebreaker 7-4 to take the match to a third set.
The deciding set was also close until Ferrer, hitting hard from the baseline, gained the only break in the sixth game. He served for the match at 5-3 but needed three matchpoints before finally extinguishing Kohlschreiber's challenge.
"It was another tough match," Ferrer said. "I'm happy in the first tournament of the year to be in the semifinals.
"It's not easy when you miss two matchpoints but I wasn't afraid. I served well in the late stages of the match, when it was important."
Almagro needed three sets to end the giant-killing run of French qualifier Adrian Mannarino, 7-6 (3), 6-7 (1), 6-2.
The 22-year-old Mannarino, ranked 80, beat No. 5 seed Juan Monaco of Argentina in the first round and eliminated last year's runner-up, his compatriot Arnaud Clement in the second round.
He also pressed the No. 14-ranked Almagro for more than 2-1/2 hours before succumbing.
"It was really tough," Almagro said. "He was playing so good at the beginning of the match and in the second set. But in the third set, I played much better than him and I could beat him.
"I didn't play my best tennis but I played a very good match with my head and mentality."
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