Casey, the 12th seed, continued his convincing Match Play debut with a 6 and 5 victory over Montgomerie in the semifinals. The duo will be teammates next week at the Ryder Cup.
'I got Colin on a slightly off day,' said Casey. 'I think I was very fortunate. I don't know what it was, but that wasn't Colin at his best simple as that.'
The 15th-seeded Micheel, who had already knocked off Tiger Woods and Luke Donald, escaped a back-and-forth match with a 2-up win over Karlsson, also a European Ryder Cup team member.
Casey and Micheel will now advance to Sunday's 36-hole final to play for the more than $1.86 million first-place prize -- the largest in the world among officially sanctioned events. The loser will receive $745,760 for second place.
Like he did in his match against Woods on Thursday, Micheel fell behind early against Karlsson when the 14th-seeded Swede won the first hole with a par and drained a 25-foot birdie putt at the fourth to go 2-up.
But Karlsson, who knocked off Jim Furyk in the first round, couldn't remain ahead. Micheel squared the match when Karlsson bogeyed the 12th, then took his first lead with a 30-foot birdie putt at the 13th.
Karlsson squared the match five times after that, but he never held a lead again.
Micheel, the 2003 PGA Champion, carried his 1-up advantage into the break, but the match was squared again when, improbably, Karlsson won the ninth with a bogey after both players drove into the trees.
Karlsson squared the match twice more after Micheel took 1-up leads with birdies at the 28th and 30th holes, but fell behind for good when he missed a 14-foot par putt at the 33rd.
Micheel then clinched the match with birdie putts at the last two holes.
On the 18th, both players found a greenside bunker, but only Micheel could get up and down for a birdie. Karlsson managed just a par, keeping alive Micheel's chance of becoming the first American champion since Mark O'Meara in 1998.
Casey had an easier time with Montgomerie, the only former Match Play champion remaining in the field.
His first birdie at the fourth gave him a 1-up lead, and Montgomerie, the ninth seed and 1999 winner, was never able to square the match the rest of the way.
A fan favorite, Montgomerie made three bogeys and no birdies on his first eight holes, then found himself 5-down already when Casey collected back-to- back birdies at the ninth and 10th -- the last one set up by a great tee shot at the short par-3.
Casey led 5-up at the break, then went 6-up at the duo's 21st hole, the par-4 third, when Montgomerie made bogey from the sand. He moved 7-up with a birdie at the next.
The closest Montgomerie came after that was 5-down, which he did four times. The first time came on a Casey bogey at the seventh, but the Englishman followed that up with a 25-foot birdie putt to win the eighth.
'I did play some good golf at times, and I knew it was going to be a tough match, but he really let me off the hook,' Casey said.
Montgomerie complained about not getting any breaks, then said, 'but that's like a football manager complaining about the fourth goal being offside when you lose 6-0.
'He [Casey] played well, deserved this victory and the best of luck to him in the final,' Montgomerie added.
By making the final, Casey is guaranteed to pass David Howell for first place on the European Tour Order of Merit -- ending Howell's bid to become the first player to go wire-to-wire as Order of Merit champion.
'It would be great if I went on and won,' Casey said. 'It would be by far the biggest win of my career. It shows me that what I've been working on in my game is paying off.'