O'Connell, ranked No.130 in the world, came into the last-four enouncter off the back of a brilliant week which had seen him knock off a host of high-profile opponents, not least Jenson Brooksby, the No.2 seed, at the quarter-final stage.
Nakashima, the No.5 seed and playing at his local tournament, was the clear favourite to win this semi-final, and did so eventually 6-4 7-6 (7-3), but not without having to dig deep across a contest that lasted one hour and 51 minutes.
Things didn't start well for O'Connell, who had his serve broken in the opening game of the match despite coming into it with some impressive service stats.
He did recover, though, to make things less than routine for Nakashima throughout the rest of the set, frustrating the American at times, who had set points in the eighth game that O'Connell didn't allow him to take. Nakashima would, however, comfortably serve it in the end.
O'Connell started the second set brightly, winning his opening service game, but found himself under more pressure in the fifth game at 0-40. He managed to fight through the adversity, reeling off five straight points to survive the scare, and claimed a sixth to open Nakashima's next service game. But the American would again work himself into a position of authority with two break points against O'Connell's serve at 4-4.
Once again, though, O'Connell drew on his bomming first serve to get things back on track, and produced an extraordinary half-volley winner to take the game and stay ahead in the second set at 5-4.
The 28-year-old Australian produced another sensational shot at 5-5 – an exquisite lob with Nakashima marooned in mid-court – and an took it to 6-5, but Nakashima held once again to force the tiebreak.
The buster didn't start well for O'Connell, who served up a double fault for the opening point. A drop shot that threatened to land on Nakashima's side of the court also frustrated O'Connell, and in a blink he found himself 0-4 down against the 21-year-old American.
Somehow, though, O'Connell again managed to haul himself back into the contest, reeling off three straight points, but he missed a powerful forehand by a whisker that would have levelled matters, and that would prove crucial.
An equally close baseline call went in Nakashima's favour, and the American fired down a hot serve that O'Connell couldn't handle to win the first of three match points, progressing to Monday's (AEST) final against fellow American and Californian Marcos Giron.
World No.58 Giron upset Great Britain's Daniel Evans, the No.1 seed, 6-3 7-5 in one hour and 46 minutes, qualifying for his maiden ATP Tour final.
The American sent down 11 aces, while he also hit 40-25 winners. Evans was unable to convert any of the three break points he generated throughout the match.