Murray had been scheduled to battle the Spaniard for a place in the showpiece, but Nadal failed in his bid for fitness after struggling with the injury in his three-set quarter-final victory over Jo-Wilfried Tsonga.
Nadal’s withdrawal has granted Murray, who won the tournament three years ago, his second walkover of the week, having been given a third-round pass over injured Canadian Milos Raonic.
Writing on his official Facebook page, Nadal said: “So sorry for my fans, those here at Miami and those around the world. My knee won’t let me play today.”
Murray fancied his chances of overcoming Nadal, who has won 13 of their 18 meetings, after rebounding well from his shock first-round loss in Indian Wells earlier this month.
Now Murray might get the chance for revenge against Australian Open conqueror Novak Djokovic, who was due to face off against Argentina’s Juan Monaco later for a place in the final.
Nadal is hoping for a quick recovery to avoid missing any of the upcoming clay-court season.
The Spaniard said his knee had been getting worse and extensive treatment on Thursday failed to help. He said he will see a doctor soon and is optimistic he will be out only briefly.
“It looks like it’s nothing really different than happened a few times in the past,” he said. “Hopefully with a few days off and with the right treatment, I will be in the right conditions to start to practice on the clay. I know what to do to get better quick, and that’s what we’re going to try.”
The six-time French Open champion still plans to begin his clay season on 16 April at the Monte Carlo Masters.
Nadal has dealt with knee problems for several years, and his left knee has bothered him since Indian Wells. He lost there to Roger Federer in the semi- finals two weeks ago.
Shortly before this year’s Australian Open in January, Nadal hurt his right knee while sitting in a chair and feared he might miss the tournament. Instead he reached the final, where he lost to Djokovic in a six-hour epic.
Nadal played no tournaments in February to rest his knees. Even then, he said, his left knee bothered him while training at home in Spain.
Knee problems prevented Nadal from playing at Wimbledon in 2009 –- the only major tournament he has missed since 2006. He retired with knee trouble from a quarter-final match against Murray at the Australian Open in 2010.
“I try my best in every moment, with pain or without pain,” he said. “But when I see the situation is done and I cannot, I cannot.”
The ten-time Grand Slam champion had hoped to claim his first Key Biscayne title. His withdrawal left the tournament without a singles match for the afternoon session.
Nadal said. “I’m very sorry for the tournament. I’m very sorry for everybody who was ready to watch the match on the television, for television, for everybody.
“I don’t have pleasure. I feel very sad to have to go out before a beautiful match for me – semifinals against Andy.”