Fifth seed Andy Murray also booked his place in the decider, becoming the first British player since John Lloyd in 1977 to get this far in Melbourne when he ditched weary 14th seeded Croatian Marin Cilic 3-6, 6-4, 6-4, 6-2.
World number one Roger Federer takes on French 10th seed Jo-Wilfried Tsonga in the second semi-final tomorrow. The tenacious Henin is playing her first Grand Slam since coming out of an 18-month retirement and kept her historic run going with a 6-1, 6-0 demolition of unseeded Chinese Zheng Jie. Williams also had to negotiate Chinese opposition and was made to work hard by 16th seed Li Na before grinding her down 7-6 (7/4), 7-6 (7/1) under a hot sun on the Rod Laver Arena to set up an enticing final on Saturday.
Scotland's Murray is attempting to become the first Briton to win a Grand Slam since Fred Perry in 1936 and he jumped all over Cilic after losing the opening set -- his first dropped set of the tournament.
"Marin showed incredible guts, he had played three five-setters here. He made it so tough for me and he was so clearly tired after his hard week," said the 22-year-old.
Looking ahead to Sunday's final, Murray said he would need to be at the top of his game, whether he played Federer or Tsonga. "It's important to play solid against either of them, maintain my level and not play silly tennis.
"It's nice, it's what you work for," he added on reaching the final. The match was marred somewhat by a fan wearing a Croatian jersey breaching security and getting on court at the end to shake Cilic's hand.
Ever since she announced her return to tennis the talk has been about whether Henin could emulate Belgian compatriot Kim Clijsters, who won last year's US Open on her own comeback. And the former world number one has lived up to expectations after being handed a wildcard by organisers.
She destroyed Zheng as she stayed on track to add to her seven Grand Slam titles, including the 2004 Australian Open. "The dream continues. I am going to play the number one and defending champion," said the 27-year-old, who became the first wildcard to reach the final here. "I wasn't sure about how I would feel on the court and how things would go. I have just enjoyed my tennis and taken it step by step. I can't wait for the final now, it is an amazing feeling."
Asked if she seriously expected to get this far, Henin revealed she was quietly confident, having booked a flight out for next Sunday before the start of the tournament.
"I was curious about how things would go and I'm very happy to come back like this," she said.
Henin has negotiated some tough opposition to get this far, including fifth seed Elena Dementieva, 19th seed Nadia Petrova and talented Belgian Yanina Wickmayer.
But the biggest test of her comeback will come in the form of Williams, who is angling for a 12th Grand Slam title to put her alongside Billie Jean King.
She saw off Li in just over two hours, with the rising Chinese star saving four match points before a delighted Williams clinched the win with an ace.
"I am happy I was able to pull it out, it was really close," said Williams. "I wasn't at my best today, but I'm still here which is shocking and I'm just going to do whatever I can to stay."
The world number one is also hoping to become the first player to successfully defend her Australian title since American Jennifer Capriati in 2002. But Williams was made to fight hard against a determined Li, who was not overawed by playing in her first Grand Slam semi-final.
"I lost the match and I was a little bit sad to be stopped in the semi-final, but I played good tennis today," said Li.