The enigmatic Frenchman defeated 10th seed Alexandr Dolgopolov 7-6 (11/9) 6-3 in the semi-finals and will meet Jurgen Mezler in the decider.
Monfils lost the first four games but battled back to force a tie-break, during which he saved three set points before finally clinching it.
The 26-year-old last won a title in Stockholm in 2011, and he said on www.atpworldtour.com: "It's very good for my confidence.
"It was good to be down two breaks and to win the set. "But I'm not so happy the way I played. I think I need to play better."
Ninth seed Melzer, who has lost all four previous meetings with Monfils, beat American Sam Querrey 6-2 4-6 6-3.
There will be British representation in the doubles final after Londoner Dom Inglot and his Filipino partner Treat Huey beat Germans Andre Begemann and Martin Emmrich 4-6 6-3 10-5.