Murray and Federer have met 11 times, with Murray winning six times. Federer won their last meeting in the Australian Open and has beaten Murray three times in tournament finals.
"Once I make it to the finals I know where my game's at," said Federer, who stated his intent to regain the No. 1 ranking this season and raised his standing one spot to No. 2 with the win over Djokovic (now No. 3).
"I win more finals than I lose. Rarely do I go to a finals and play a shocker. But it's not the same playing a guy ranked 40 in the world and a guy No. 4. [Murray] who comes off a win beating Rafa. We all know how hard it is to beat Rafa and me, but it's been done in the past and that's why I have to be careful tomorrow."
Federer improved to 10-5 all-time against the 23-year-old Djokovic, who won the Rogers Cup title in his debut appearance in 2007. The Swiss star also raised his ranking to No. 2 on the ATP Tour, dropping Djokovic to the third spot.
Federer broke serve in the first set to go up 2-0, looking dominant with sharp cross-court forehands. He aced a fourth straight point to hold serve and take a 3-0 lead, putting Djokovic on his heels. The Serb pulled one back in the next game but couldn't fend off Federer's pressure, committing multiple unforced errors to lose the first set decisively.
"Overall, I think it wasn't the best performance by my side," Djokovic said. "I wasn't serving well when I needed to, and I made a lot of unforced errors on my backhand side."
Djokovic's emotions got the best of him just before dropping the 11th game, smashing his racket with verve before his elimination was sealed in the next and deciding game.
"It's a little bit frustrating that I haven't used the opportunity I had in the end," Djokovic said. "But, you know, he was realistically a better player today."
Murray needed 1 hour, 44 minutes to complete the victory over Nadal on a muggy afternoon at the Rexall Centre.
"You never expect to beat the best players in the world," Murray said. "But I think if I play my best tennis like I did today, I have a very good chance against all of them."
Murray used his strong baseline game to knock off the top seed. He put pressure on Nadal throughout the match and kept the unforced errors to a minimum.
Using powerful topspin shots from the back of the court, Murray moved Nadal from corner to corner. His slice and cut shots also were effective, preventing the speedy Spaniard from getting into a rhythm.
"His movements are great from the baseline," Nadal said. "They're fantastic, his movements. And he has unbelievable hands to return the ball. That's one of the best things of his game."
The players held serve in the opening set until Murray broke for a 5-3 lead. He added three aces in the next game and took the opener in 49 minutes. After exchanging service breaks in the second set, Murray broke again to go up 5-4 before serving out for the win.
He improved to 4-8 against Nadal, with all four victories coming on hard courts.
Murray is looking to become the first men's player to repeat as Rogers Cup champion since Andre Agassi successfully defended his title in 1995.
Julien Benneteau and Michael Llodra of France advanced to the doubles final with a 7-6 (5), 6-4 victory over Frantisek Cermak of the Czech Republic and Michal Mertinak of Slovakia. Bob and Mike Bryan of the United States were scheduled to play Mahesh Bhupathi of India and Max Mirnyi of Belarus in the late doubles match.