Nadal extended his dominance of Spanish compatriot Feliciano Lopez to ease into the quarter-finals.
The world number two had not dropped a set in their four previous hard court meetings and maintained that record with a 6-4 6-4 6-2 success on Rod Laver Arena.
Nadal's all-round game was too much for 18th-seed Lopez, whose passive approach played into his opponent's hands.
Possessing a big serve, a good touch at the net and powerful forehand, Lopez was expected to move forward as often as possible.
But mystifyingly he opted to take on Nadal at his own game, becoming engaged in baseline rallies he was unlikely to win.
And with Nadal's serve, particularly early on, offering nothing, it was always going to be an uphill task for the 30-year-old.
Nadal dropped just four points on serve in the opening set and a solitary break in the third game - secured via a Lopez double-fault - proved decisive.
The second was at least more competitive as Lopez cancelled out an early break to level at 2-2.
And when Nadal threatened again in game five, it seemed as though Lopez realised a more attacking approach was required as he charged the net to avert the danger.
However, he retreated backwards once more and was made to pay as 10-time grand slam champion Nadal broke for 4-3, capitalising on a poor Lopez volley.
From two sets down it looked a long way back for Lopez and so it proved as two more breaks settled it.
Federer crushed home hope Bernard Tomic 6-4 6-2 6-2 to reach the quarter-finals for the eighth straight year.
The 30-year-old Swiss former world number one sent down 13 aces to beat the 19-year-old Australian in emphatic fashion.
Tomic came into the match following an upset third-round win over 13th-seeded Alexandr Dolgopolov and his unorthodox style was expected to cause Federer some problems.
But four-time Australian champion Federer had no trouble in front of a packed house of 15,000 at Rod Laver Arena. He stepped up his game when he needed to, breaking the Australian at 4-4 in the opening set and again to open the third.
Federer will now meet Juan Martin Del Potro in the quarter-finals in their first grand slam match-up since the Argentine beat the Swiss in the final of the 2009 US Open.
Tomas Berdych advanced to face Nadal courtesy of a stormy 4-6 7-6 (7/5) 7-6 (7/3) 7-6 (7/2) win against Nicolas Almagro.
A tight match turned sour at 5-5 in the fourth set with Berdych serving at 0-30.
Having come to the net and played a poor drop shot, leaving the ball in mid-court, Almagro drilled the ball straight at the Czech, hitting him on the upper arm.
Even though it was a legitimate tactic with Almagro also apologising immediately, Berdych was clearly livid at the end, refusing to shake the Spaniard's hand, instead walking straight to the umpire's chair.
And while Almagro was cheered off Hisense Arena, Berdych was booed during his post-match interview.
"When you have a point and somebody wants to hit you straight to your face, I don't see this as a nice moment especially as you have the whole court open," said Berdych.
"But I am happy to go through to my next match."
Eleventh seed Del Potro secured a routine 6-4 6-2 6-1 defeat of Philipp Kohlschreiber.
Australian Open Day 7 Men's 4th Round Results