Thiem said he is feeling stronger after his ankle injury as he builds up to the French Open later this month and has tried to forget recent losses to Nadal in Monte Carlo and his shock exit at the hands of Greek teenager Stefanos Tsitsipas in Barcelona.
The big-serving South African, who had reached the last four of a Masters tournament for the first time in his career, was aiming to go one step further by reaching his fourth ATP Tour final the season..
Thiem's confidence was on display in the semi-final Saturday as he dispatched off Kevin Anderson in straight sets - his first win over the American star - in the semi-final.
On the men's side, second-seeded Alexander Zverev brushed aside Denis Shapovalov 6-4, 6-1 to reach the final.
"This is the earliest I've finished all week", joked Zverev. Thiem has beaten Zverev four of the five times they've played, including all three on clay.
Thiem brought that same winning attitude starting with a break and holding on to that lead to grab the first set. View FedEx ATP Head2Head for the championship match at the 2018 Mutua Madrid Open & vote for who you think will win! "So is he. Hopefully it will be another entertaining one", Zverev said of Sunday's final.
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Manchester City have stormed their way to the title this year and are 19 points ahead of second-placed Manchester United with just one game to play.
Previous year was similar for Nadal: he won four clay tournaments but lost in the quarterfinals at the Italian Open, in straight sets to Dominic Thiem.
"Denis came to play today, so I had to step up my game as well", the victor said on-court. Thiem's only loss to Zverev came in Beijing of 2016.
Anderson is not a natural clay court performer, and didn't really have an answer for a skilled exponent on the surface like Thiem.
Coming off a successful title defence in Munich last week, Zverev has faced just one break point all week.
It was the Austrian who was the last to beat Nadal, that came in Rome a year ago and fast forward to Madrid, he again proved a thorn in Nadal's side. "The way I started was also well", Thiem said. "But I was keeping my level up from yesterday, so that was a great thing". Yeah, nearly everything worked out. "Now I'm in the finals again, which is fantastic for me". It was to prove a fairly comfortable outing for Zverev as he triumphed 6-2 7-5, as was his third round clash with Leonardo Mayer, who he defeated 6-4 6-2. Since the start of last year's French Open, Nadal had not lost a set on clay in three tournaments plus two Davis Cup matches. But I'm playing quite well.
In the women's tournament, Petra Kvitova extended her winning streak to 10 matches as she beat Czech compatriot Karolina Pliskova in straight sets to book her place in the final.