Contesting an eighth consecutive three-setter, Pegula clawed her way back from 2-5 down in the decider to shock the world number one and set up a final against fellow American Gauff, who squeezed past Jasmine Paolini 6-4, 6-3.
"That was crazy, I can't believe I came back and won that," said Pegula, who has won seven of the eight consecutive three-set matches she played in the last 17 days.
"I’m just really proud of myself. I’ve played so much tennis the last few weeks, so many three-set matches but I feel like I’m very tough right now and I’m just using that as best I can."
The sixth-seeded Pegula is through to her sixth final of the season, having dethroned the reigning Wuhan champion Sabalenka, who came into the match with a perfect 20-0 record at the tournament.
Played in significantly cooler temperatures compared to the rest of the week, both semi-finals of the day featured a whopping number of service breaks due to the slower conditions.
There were five breaks of serve in the first six games of the contest before Sabalenka managed to consolidate her advantage and create a 5-2 gap.
Pegula, 31, threw her racquet in frustration when Sabalenka fired a return winner to get to set point the following game and the Belarusian scooped the opening set as the match clock hit 40 minutes.
Despite her struggles on serve, Pegula was playing great off the ground, which helped her course-correct in the second set.
The American squandered a 2-0 lead early on but recovered to wrestle the second set away from Sabalenka’s hands and force a decider.
The final set was another see-saw affair, but it looked almost over when Sabalenka served for the win at 5-3. Pegula had other ideas and flipped the script to lead 6-5.
Serving for the victory, Pegula double-faulted four times and let two match points slip away, allowing Sabalenka to force a deciding tiebreak.
Pegula upped her level when she needed it the most to claim just the third victory from 11 meetings with Sabalenka.
Gauff ousts Paolini
Gauff survived a battle of wills and some serving wobbles against Paolini in their semi-final.
The two-time Grand Slam champion had lost all three meetings she had with Paolini in 2025 but turned things around with a clutch effort on Saturday.
"It was 3-0 this year but I think our head-to-head is even now," said Gauff of her record against the Italian.
"I’m really happy with how I played today, it was tough, especially playing on the serve, but I did what I needed to do to get through."
In a semi-final dominated by the return, Gauff edged Paolini by the slimmest of margins.
A run of 11 consecutive breaks of serve swung the momentum like a pendulum, but it was Gauff who finally held serve in game seven of the second set en route to an 82-minute victory.
The 21-year-old is through to the fifth WTA 1000 final of her career, and third in 2025.