Nadal's victory set up an all-Spanish semifinal after 14th-seeded Fernando Verdasco -- the lowest-ranked player to reach the quarterfinals -- beat No. 5 Jo-Wilfried Tsonga, last year's runner-up, 7-6 (2), 3-6, 6-3, 6-2.
"I think it's incredible for us," Nadal said. "One will be in the finals, so we have to be happy with that."
While Nadal continued his streak of not dropping a set, he was strongly tested by the sixth-seeded Frenchman. Simon broke his serve three times -- matching Nadal's total for the tournament -- and had a set point with the Spaniard serving at 4-5 in the second set.
But Nadal was up to the task, ripping several winners on the run that were never inside the court until they landed and skipped away untouched.
Simon won their last meeting in Madrid in October.
"I was coming to the match with some doubts," Nadal said. "But I knew I was playing better here."
Simon is one of the quickest players around, but Nadal ground him down by constantly sending him sprinting from corner to corner. Even with the roof still closed, the lanky Simon was pouring out sweat.
Nadal got his seventh service break on a forehand that caught the line for a 6-5 edge in the third set, then held at love with Simon sending a forehand long on match point.
The 14th-seeded Verdasco, who upset Britain's Andy Murray in the fourth round, beat Tsonga 7-6 (2), 3-6, 6-3, 6-2 in the quarterfinals on Wednesday.
Tsonga lost to Novak Djokovic in the 2008 title match and was seeded fifth this year.
The 25-year-old Verdasco, a key player in Spain's Davis Cup win, has never advanced past the fourth round at any Grand Slam and never past the second round at the Australian Open.