Williams' loss on Friday came just three days before the start of the Australian Open, where the American is the defending women's singles champion.
Williams, who had 40 unforced errors in 17 games against the 2008 Olympics champion, appeared to sustain a knee injury during the match. But she would not elaborate on the injury when asked during the presenation ceremony.
Earlier, former Australian Open finalist Marcos Baghdatis beat American Mardy Fish 6-4, 6-7 (7), 7-6 (5) in a men's semifinal. Baghdatis' opponent in the final will be Richard Gasquet, who beat French compatriot Julien Benneteau in the other semifinal 6-3, 7-5.
Dementieava reversed her straight-sets loss to Williams at the 2009 season-ending championships to claim back-to-back titles in Sydney. The 28-year-old Dementieva is the first woman to defend her crown in Sydney since Martina Hingis in 2001-2002.