The Serb cruised through the first two sets 6-1 6-2 in 54 minutes. The four time champion fought back to clinch the third 6-3 but was broken when trailing 3-4 in the fourth.
Djokovic served out confidently and will attempt to win his 11th grand slam title on Sunday against either Andy Murray or Milos Raonic who play on Friday.
"I played an unbelievable first two sets but that is what is necessary against Roger as he has been playing at a very high level in this tournament," said Djokovic. "I knew he was going to be aggressive and mix up the pace and try to come to the net. But I came out with the right intensity with great concentration and I executed everything perfectly. But it was a battle in the end."
Following his defeat Federer was as munificent as he was tetchy. He has not beaten Djokovic in a grand slam tournament since he overcame him in the semi-final at Wimbledon in 2012, the last of his 17 grand slam victories. "Best-of-three, best-of-five, I can run for four or five hours. It's not a problem. So from that standpoint I'm not worried going into long rallies," Federer said.
"I know the media make it a different case. I get that - because you think I'm old and all that. But it's no problem for me. But it doesn't scare me when I go into a big match against any player who's in their prime right now."
Federer's contemporary and one time nemesis Lleyton Hewitt retired from the circuit after his second round defeat at the Australian Open. The 34-year-old Swiss was one of a clutch of players who contributed to a video eulogy for the former world number one.
"It's disappointing to lose," added Federer; "But at the same time I'm going deep in slams right now. I'm having great runs. I thought I had a tough draw here, so I'm actually pleased with my level at the beginning of the season.
"Novak right now is a reference for everybody. He's the only guy that has been able to stop me as of late. I wish I could have played a bit better and who knows what would have happened. But Novak was very, very good. There's no doubt about it."