World number one and defending champion Williams saw off ninth seed Dominika Cibulkova in straight sets, beating the Slovakian 6-3 6-3, but Sharapova was made to work a little harder by Kaia Kanepi for her victory.
Estonian Kanepi, the 2012 winner, took the first set and was a break up in the second, but Sharapova battled back to claim the match 4-6 6-3 6-2.
A relieved Sharapova said on www.wtatennis.com: "She's a really tough opponent. For me it was a slow start. I wasn't very sharp in the beginning. I'm happy I pulled it through, and at this stage it's a good match for me to get through."
Sharapova has her work cut out to make it through to the final as she has lost 14 of her 16 career meetings with Williams - including all of their last 13 encounters.
The Russian added: "I haven't had a lot of success against her in the past. But it's the first tournament of the year. You always hope that you can go out and give yourself a chance to do better next time."
The other semi-final will see second seed Victoria Azarenka play Jelena Jankovic, the fourth seed.
Both players were taken to deciding sets by their last-eight opponents before going through, with Azarenka defeating Stefanie Voegele 6-4 6-7 (7/9) 6-1 while Jankovic battled back from a set down to beat fifth-seeded Angelique Kerber 6-7 (8/10) 6-3 6-1.
In the men's event, Romanian qualifier Marius Copil caused a shock as he beat third seed Gilles Simon 7-5 6-3 in his second-round clash.
Awaiting Copil in the quarter-finals is home favourite Lleyton Hewitt, who also knocked out a seeded player as he defeated number six Feliciano Lopez 7-5 6-3 in a match which saw the Australian save nine of the 10 break points he faced.
It was not all doom and gloom for the seeds though, with number eight Jeremy Chardy progressing through with a 7-5 6-7 (4/7) 6-3 victory over fellow Frenchman Nicolas Mahut in a match that lasted just over two hours.
Chardy will face Australian Samuel Groth next, after he knocked out another Frenchman, Pierre-Hugues Herbert, by a 4-6 7-6 (7/3) 7-6 (7/5) winning margin.