The Spanish second seed defeated the Russian 6-4, 7-6(2) in an entertaining encounter to reach his 37th tour-level final and fifth of the 2026 season.
Alcaraz will face Australia's Alex de Minaur in Sunday's final after the fifth seed produced an impressive upset against Alexander Zverev in the other semi-final.
Alcaraz takes control in opening set
Both players started strongly, but Alcaraz gained the early advantage by breaking Medvedev's serve in the fourth game.
The Russian responded immediately, breaking back in the following game to restore parity and keep the opening set competitive.
However, Alcaraz maintained his composure and increased the pressure as the set approached its conclusion.
At 5-4, a double fault from Medvedev presented the Spaniard with two set points. Alcaraz capitalised on the opportunity, converting the first to take the opening set 6-4.
Spaniard dominates tie-break to seal victory
Medvedev raised his level in the second set and refused to allow Alcaraz to run away with the contest.
The Russian recovered after falling 4-2 behind, breaking Alcaraz's serve to level the set and force a tie-break.
However, the Spaniard delivered when it mattered most, winning five consecutive points in the tie-break to establish a commanding advantage.
Alcaraz eventually secured the tie-break 7-2 to complete a 6-4, 7-6(2) victory and book his place in the final after 96 minutes of action.
The victory also ended Medvedev's seven-match winning streak.
Medvedev secures ATP Finals qualification
Despite the defeat, Medvedev had reason to celebrate after securing qualification for the season-ending ATP Finals, scheduled for next month.
The former world number one reached at least the semi-finals of a tournament for the fifth consecutive time, underlining his impressive recent form.
Alcaraz, meanwhile, was pleased with his performance against a player he described as particularly difficult to beat on indoor courts.
"It's a great feeling, beating someone like Daniil on an indoor court, after the run he was having," Alcaraz said.
"I'm really happy to have the chance to play another final, and my first one here in Vienna."
De Minaur sets up final showdown with Alcaraz
Alcaraz's opponent in Sunday's final will be Alex de Minaur, who defeated Germany's Alexander Zverev 6-4, 1-6, 7-6(4) in the other semi-final.
The Australian recovered from losing the second set to prevail in a decisive tie-break, ending Zverev's winning run and denying the German a place in the final.
De Minaur also extended his unbeaten indoor record for the 2026 season to 10 matches and reached the 23rd tour-level final of his career.
The Vienna Open final will therefore provide Alcaraz with an opportunity to claim another ATP title, while De Minaur will be aiming to complete an impressive week by overcoming the Spaniard.
Vienna Open semi-final results:
• Carlos Alcaraz: Defeated Daniil Medvedev 6-4, 7-6(2).
• Alex de Minaur: Defeated Alexander Zverev 6-4, 1-6, 7-6(4).
Final: Carlos Alcaraz vs Alex de Minaur.