After an attritional game finished 0-0 following extra time, Cesc Fabregas swept home the winning spot-kick to put Spain in the final.
Xabi Alonso and Joao Moutinho both saw their opening penalties saved, but Portugal blinked first when Zenit Saint-Petersburg centre-back Bruno Alves slammed his side's fourth penalty against the crossbar.
Fabregas stepped up and, just as he had done in the penalty shootout win over Italy in the Euro 2008 quarter-finals, the Barcelona man held his nerve, steering the ball into the bottom-left corner to send Portugal home.
Reigning world and European champions Spain, who are bidding to become the first team in history to win three major competitions in a row, will face either Italy or Germany in Sunday's final in Kiev.
It was a deeply disappointing end to the tournament for Portugal captain Cristiano Ronaldo, who had threatened to fire his side into only their second major final but who did not even get a chance to have his say in the shoot-out.
