Paul triumphed 7-6 (8-6) 6-3 5-7 6-4 against Shelton at Rod Laver Arena, ending the 20-year-old's surprise run on his first trip outside the United States.
World number 35 Paul showed his class in longer exchanges between the two big-serving Americans, though Shelton briefly troubled the 25-year-old when he claimed the third set after going a break down.
Having found an immediate break to quell Shelton's momentum, Paul dominated on serve in the fourth set to become the first American man to reach the Australian Open semi-finals since Andy Roddick in 2009.
Having teed up a meeting with either Novak Djokovic or Andrey Rublev, Paul said: "Yesterday when I was doing a couple of interviews, they asked how it felt to be in the quarter-finals, and I was like, 'semi-finals sounds a little better'.
"I'm pumped to be there and really excited for whoever I play. Making it to the second week of a slam is everyone's dream when they start playing tennis. So I can't believe I'm here right now."
