Roger Federer secured his 102nd career singles title and remained unbeaten on grass so far this season.
Alexander Zverev served nine double faults in a rollercoaster match, and survived two match points in the third set before ultimately losing in the tiebreaker.
Roger Federer continues his first French Open campaign in four years on Friday with a third-round match against Norway's Casper Ruud, while reigning champion Rafael Nadal faces Belgian David Goffin.
Andy Murray now has a 6-0 head-to-head record against David Goffin.
Second seed Dimitrov had to fight back in the second set to defeat Japan's Yuichi Sugita 6-4, 7-6 (7/5) in their first-round encounter.
Grigor Dimitrov will climb to third in the rankings behind only Rafael Nadal and Roger Federer as he begins to deliver decisively on his rich promise as a youngster.
David Goffin, who had never beaten his much-vaunted opponent, looked aggressive and did not allow Roger Federer to dictate play as the Swiss player lost his precision.
Roger Federer has never lost a single match to any of the remaining players in the ATP World Tour Finals 2017.
David Goffin had a shaky start, losing the first three games, but lost only two games after that in the entire match as he romped to victory in 71 minutes.
Dimitrov, who defeated Dominic Thiem in three sets in his Pete Sampras group opener, has already made history as the first Bulgarian to qualify for the season-ending Tour finals.
Rafael Nadal pulled out of the ATP Finals on Monday, admitting he had lost his fitness battle after crashing to defeat in three sets to David Goffin in a thrilling encounter.
How to watch Rafael Nadal vs David Goffin, ATP World Tour Finals match live. Read all about live coverage and match action from The O2 Arena in London on November 14 (IST).
Rafael Nadal will face Spanish compatriot Albert Ramos-Vinolas, who defeated Lucas Pouille 6 -3, 5-7, 6-1, in Sunday's final.
Serbia's Novak Djokovic loses to Belgium's David Goffin 2-6, 6-3, 5-7 in the last-eight stage in Monte Carlo
Rafael Nadal needed all his trademark grit against Alexander Zverev, 19, dubbed "the future of tennis", and his superior fitness told as he ground out a thrilling 4-6, 6-3, 6-7 (5/7), 6-3, 6-2 win
Novak Djokovic had already qualified for the semi-finals as group winner, but the Serb was keen to keep the momentum going in his bid to overhaul world number one Andy Murray and he took just 69 minutes to demolish David Goffin at London's O2 Arena
Roger Federer, a 17-time Grand Slam winner, is seeking a ninth title in the Wimbledon warm-up event and fourth in succession at the tournament
Novak Djokovic has beaten Dominic Thiem, who has made the semi-finals of a Grand Slam for the first time, in both of their previous meetings