In their 47th career head-to-head, the Serbian moved to one win away from his fifth title at the tournament after triumphing 7-6 (6), 5-7, 7-6 (3) in over three hours to improve the record to 25-22.
14-time grand slam champion, Djokovic, won the first set 7-6. Khachanov continued to press on for his second break in the 11th game and served out the opening set at 7-5.
The 22-year-old reached his first Masters 1000 showpiece after seeing off the sixth seed in 71 minutes - the same time it took Djokovic to win the first set against Federer.
The Sunday showdown was Khachanov's first ever Masters final.
Novak Djokovic lavished Karen Khachanov with praise after the Russian recorded the biggest win of his career to date in the final of the Paris Masters.
The 1.98m Khachanov dominated from the baseline and attacked the Thiem service, breaking the Austrian in his final five service games of the match.
Khachanov, who crushed Dominic Thiem 6-4, 6-1 in the semi-final on Saturday, took advantage of Djokovic appearing to be a little under-the-weather after a week struggling with flu-like symptoms. "I came here to Paris with no expectations and figuring that I'd just play a match or two, thinking I'd probably lose because I was too exhausted after Basel". "Maybe I'm not crying, but still I'm really happy", he told reporters later.
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The Russian fully demonstrated his confidence later on, finishing quadruple breaks for a 6-1 second set victory.
Federer and Nishikori held serve with relative ease early on in their quarter-final before the 20-time grand slam champion stepped up the pace at 4-4.
"But overall I'm happy with my game".
"I won the match, but if he would've won it, it would've been absolutely deserved".
Djokovic, who has been an impervious force over the past four months, said, "The quality of his serve tonight was quite unbelievable, to be honest. I can't foresee too much in advance but I don't think it will be my last match here".
"He deserves his trophy and I am sure we will see a lot of great matches from him in the future".