Unseeded two-time Grand Slam winner Muguruza knocked off fourth seed Simona Halep 7-6 (10-8), 7-5 to book her spot in her first major final since winning Wimbledon in 2017.
The 26-year-old Spaniard, who held a 3-0 record against Halep on hard court, qualifies for her maiden Australian Open final.
Muguruza served 10 aces to Halep’s two in the victory, while she had good success rushing to the net, putting the Romanian under pressure.
The win came in less than two hours, as Muguruza continued her fine run which has included victories over Kiki Bertens and Anastasia Pavlyuchenkova on her way to the final.
Earlier in the day, top seed Ashleigh Barty blew set points in both sets as she went down to American 14th seed Kenin.
Florida resident Kenin, 21, defeated Barty 7-6 (8-6), 7-5 in the semi-final, ending Barty’s bid to be home country Australia’s first champion since 1978.
Barty had the opportunity to serve for both sets in the match but stumbled, including leading 5-4 with set point on serve in the second, before losing the next three games.
Kenin and Muguruza’s progression to the final means it’s the first time in the Open era that a women’s player from inside the top 10 has failed to qualify for the decider.
The young American said: “I’m speechless. I can’t believe this. I’ve worked so hard to get here.
“In the second set, she came up with some really great shots. There’s a reason why she’s world No 1.”