The Blues started the better of the two sides, before Harry Kewell started to pose a threat on the left flank for Rafa Benitez's side.
The first major chance of the game arrived in the 19th minute, with Didier Drogba shooting wide with just keeper Jose Reina to beat after taking the ball down well on his chest just inside the area.
A couple of minutes later he was made to pay as John Terry was penalised for a high boot 25 yards from goal and John Arne Riise curled the free-kick home through a weak Chelsea defensive wall.
The Blues however, continued to have the better of possession, but they were almost two goals down at the break as Carlo Cudicini had to react quickly to deny Peter Crouch after a short back-header from Terry.
At half-time Chelsea brought on Arjen Robben and soon after his free-kick was headed home by Terry, but the effort was disallowed for pushing.
Within three minutes the Reds were two goals up as William Gallas' poor defensive header allowed Luis Garcia time and space to place an exquisite 20-yard left-foot lob over and beyond the stranded Cudicini.
Jose Mourinho threw on Joe Cole and Damien Duff to try and rescue the game and 20 minutes from time Drogba threw his side a lifeline as he headed over the advancing Reina after Riise's mistake.
Chelsea then piled on the pressure as time ticked away, with Liverpool content to pack their defence and hang on to their one-goal advantage.
Five minutes of added time only added to the drama and with four of those extra minutes played, Cole was presented with an open goal following a corner, but he inexplicably blazed his shot over the crossbar.
That left the Reds to celebrate their passage to the final and left Chelsea's Double dreams in tatters.