Chelsea dominated the first half and deservedly led at the break but allowed their visitors to hit back in the second period as the match moved into extra-time.
A dramatic first 15 minutes of extra-time finally sealed Chelsea's progress to their first Champions League Final although Liverpool again hit back with a late goal before Avram Grant's side eventually won 3-2 on the night and 4-3 on aggregate.
The Blues edged the first half and took a deserved 33rd-minute lead when Frank Lampard set up Salomon Kalou whose shot was parried by Pepe Reina. However, the rebound fell to Didier Drogba who beat the Reds keeper at his near post.
Michael Ballack almost doubled Chelsea's lead before half-time only to curl his free-kick narrowly wide with Reina rooted to the spot.
However, Chelsea sat back after the interval and paid for their negative approach when Liverpool equalised midway through the second half.
A superb run by Yossi Benayoun created the goal, the Israeli cutting through the heart of the Chelsea defence before sliding the ball through to Fernando Torres who turned it home from virtually on the penalty spot.
At this stage of the match Liverpool looked the likelier winners but it was Chelsea that grabbed the next crucial goal in extra-time.
In the 95th minute a corner was half-cleared to Michael Essien who smashed his shot home. The Ghana man was celebrating with his team-mates before seeing the linesman with his flag raised for offside, apparently because Drogba was standing in front of Reina.
Almost immediately Chelsea were awarded a penalty though when Sami Hyypia brought Ballack down just inside the area.
Lampard, whose mother died last week, sent Reina the wrong way from the spot to put the Blues ahead in emotional scenes.
Liverpool thought they should have had a spot-kick of their own when Hyypia went down in the Chelsea area but the referee waved play on, and Drogba was soon to add to their woes.
Substitute Nicolas Anelka did brilliantly to pull the ball back from the byline for the Ivory Coast international to fire a first-time shot past Reina in the 115th minute.
There seemed to be no way back for Rafa Benitez's side but Chelsea were given an anxious last few minutes when Petr Cech allowed Ryan Babel to beat him with a curling shot that the Czech keeper should have saved.
But there was to be no way back for Liverpool as Chelsea gained at least some revenge for their two recent semi-final defeats to the Reds by securing a Champions League Final date in Moscow in three weeks' time.