Murray was leading No. 2-ranked Nadal 6-3, 7-6 (2), 3-0 when the Spaniard said he could not continue. Murray is the first British man in 25 years to reach the semifinals in Australia.
Nadal, who struggled with knee tendinitis and was unable to defend his Wimbledon title last season after beating Roger Federer in the Australian Open final, received on-court treatment from a trainer for a right knee ailment after losing the second set.
Three games later, the Spaniard decided he couldn't continue.
Nadal said he didn't want to risk more damage by playing and potentially having to spend long periods off the tour with knee tendinitis.
"Similar thing that I had last year," Nadal said of the pain. "It was impossible to win the match."
"I didn't know when he hurt his knee, when he started feeling it, but from my side, I played very well," said Murray, who is hoping to end a seven-decade British drought at the majors. "I deserved to be up when the match stopped."
The 22-year-old Scot can hardly wait to play his semifinal against Cilic.
"I lost to him at the U.S. Open in straight sets, so I'm looking for a little revenge," Murray said. "If I play like I did tonight, I have got a good chance. Obviously, nerves are going to be there with an opportunity to make a final of a Slam."
Murray's only Grand Slam final appearance ended in a loss to Federer at the 2008 U.S. Open.
Nadal predicted the Scottish player will end his Grand Slam title drought by winning the Open.
"There's a very good chance for him. First thing, he's playing very well," Nadal said. "Second thing, he's already in the semifinals. He's only two matches away."
The 21-year-old Cilic, who ousted U.S. Open champion Juan Martin del Potro in the fourth round, became the first Croatian man to reach an Australian Open semifinal with his 7-6 (4), 6-3, 3-6, 2-6, 6-3 win.
Roddick hurt his shoulder late in his five-set fourth-round win over former Australian Open runner-up Fernando Gonzalez and said that, during the first set against Cilic, it was painful to serve and hit high forehands.
Roddick said he had numbness in the fingers on his right hand and pain stemming from the shoulder and played on only after the trainer told him there wasn't a high risk of permanent damage.
"From that stage, it was pretty much just go," Roddick said.
Roddick said he didn't practice on Monday after feeling a twinge in his shoulder during Sunday's fourth-round match against Gonzalez.
"The trainer said it was stemming from the neck down," Roddick said. "By the end of the first set, I was pretty numb in the bottom two fingers. I could still hit it pretty hard; I was just having trouble controlling it."
Cilic earned the pivotal service break at the start of the fifth set and held off Roddick, who has not come back from two sets down in a major since his semifinal win over David Nalbandian at the 2003 U.S. Open.
His exit at Melbourne continues a record drought for American men at the majors, extending beyond six years since Roddick's last title at the '03 U.S. Open.
It also continued a sequence for Roddick, who has made the Australian Open semifinals each odd-numbered year since 2003, but never made the final.
Cilic said he had momentum from three five-set matches in Melbourne and knew he could lift his play in the fifth.
"It wasn't easy, but I've got experience during the week here," Cilic said. "I had a few extra gears."
Still in the equation at Melbourne Park is three-time champion Federer, who plays Nikolay Davydenko in the quarterfinals on Wednesday. Novak Djokovic, the 2008 champion, takes on the same year's runner-up Jo-Wilfried Tsonga in the other quarterfinal.
Information from The Associated Press is included in this report.