The 24-year-old Austrian was playing in his first Grand Slam final, and although he pushed Nadal at times, he fell to an ultimately one-sided 6-4, 6-3, 6-2 defeat.
Rafael Nadal joins Australia's Margaret Court as the only player to win 11 titles at the same major.
Rafael Nadal outplayed Dominic Thiem 6-4, 6-3, 6-2 to clinch his 11th French Open title.
Nadal, with 16 majors to his name, will play his 24th Grand Slam final at Roland Garros against Dominic Thiem who is in his first.
Dominic Thiem is the only man to beat Rafael Nadal on clay in the last two seasons - in Madrid this year and Rome in 2017.
Marco Cecchinato, who had never won a Grand Slam match in his career before the French Open 2018, will face Dominic Thiem for a place in Sunday's final.
Dominic Thiem on Tuesday cruised into the semi-finals of the French Open defeating Alexander Zverev in straight sets.
Highly-rated Canadian teenager Denis Shapovalov was knocked out by Germany's Maximilian Marterer 5-7, 7-6 (7/4), 7-5, 6-4.
_1526270186188.jpg?output-quality=70&output-format=webp&downsize=239:* "Alexander Zverev Powers Past Dominic Thiem To Win Madrid Masters")
Alexander Zverev has long been marked out as a future star of the men's game and his victory suggests the German can be a major threat at the French Open later this month.
_1526063451320.jpg?output-quality=70&output-format=webp&downsize=239:* "Madrid Open: Rafael Nadal")
The shock result on Friday also means that Roger Federer will reclaim the world number one ranking on Monday
The Spaniard is now just two wins away from a record 31st Masters title, after winning 32 consecutive sets on clay.
The 16-time Grand Slam champion Rafael Nadal needs to win an 11th Monte Carlo title to stay clear of Roger Federer at the top of the world rankings.
The 12-time Grand Slam champion Novak Djokovic has still not reached a quarter-final since Wimbledon last July after struggling with an elbow injury.
Dominic Thiem will next meet Pablo Andujar of Spain in the ATP 500 clay court event on Thursday.
Dominic Thiem clinched his second Argentina Open title, defeating Slovenia's Aljad Bedene 6-2 and 6-4.
Djokovic revealed he felt "great" after beating world number five Dominic Thiem 6-1, 6-4 at the Kooyong Classic.
The world number five was pushed hard by his opponent, especially in the first set where Donskoy threatened an early upset.
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.
