Isner was also playing for a berth in the elite eight-man ATP Finals, and that ended, too.
Krajinovic slid onto his back and sobbed, his arms raised, after sealing victory on his first match point. The Serb then knelt and kissed the court.
"When I served for the match my hand was shaking," Krajinovic said. "It was tough to control the emotions. Best day in my life but the tournament is not over yet."
He will play for his first career title against another American, Jack Sock, who comfortably beat Julien Benneteau of France 7-5, 6-2. Sock has never won a Masters title and can qualify for the season-ending ATP Finals in London if he does so here.
Sock dropped his serve twice but broke Benneteau five times. Sock will go for his third title of the year and fourth of his career. Benneteau is retiring.
"I was able to ... play my game, swing big," Sock said. "I'm going to have to bring my A game tomorrow. ... Everyone knows (Krajinovic) is a very talented player and he's showcasing that."
Isner didn't hide his disappointment.
"I had an opportunity here to do some things (ATP Finals) I've never done before," Isner said.
He was a runner-up in Paris last year and again fell short of an elusive first Masters title.
"This one is going to sting because I knew I was the highest-ranked player in the semifinals," he said.
Krajinovic is the lowest-ranked in a Masters final since 2003, when 191st-ranked Andrei Pavel made it in Paris.
The 77th-ranked Krajinovic had won only 17 matches in his whole career — thwarted by injuries — before this tournament.
He is also the first qualifier to reach a Masters final since Jerzy Janowicz in 2012, also in Paris.
However, he was helped by not having to play his quarterfinal because top-ranked Rafael Nadal pulled out with a right knee injury. Nadal has not said whether he will be fit enough to play in the Finals, starting on Nov. 12.
Serving for the first set, Krajinovic held to love.
Isner dominated the second-set tiebreaker and leveled the match with an ace.
Isner forged a break point at the start of the third set, but missed it with a wasteful forehand. Then he spurned another chance on Krajinovic's serve at 30-40 in the ninth game.
"I missed the ball by a few inches," Isner said. "With how well I was serving today, that was essentially a match point."
In a tense decisive tiebreaker, Isner led 3-0 but Krajinovic went 5-4 up. Isner's 31st ace tied it but a superb return to Isner's feet on the next point gave Krajinovic match point on his serve.
Reaching the final is particularly sweet for a top-10 junior whose promising career was held back by an extra bone in his right wrist that needed treatment, following on from a right shoulder operation in 2011.
"I really had big injuries. But I stayed calm," he said. "I knew that one day everything will come back."
He hasn't forgotten the support from countryman Novak Djokovic during his injury layoffs.
"We are very close friends," Krajinovic said. "He was helping me right after the injuries. He gave me a coach."
Nor has he forgotten the sponsors who dropped him when he was down.
"I break top hundred a couple years ago and then all of a sudden I have an extra bone in my wrist," he said. "It was mentally really tough because, you know, getting older and older all sponsors said no to me."
A whipped forehand winner into an open side of the court was enough for victory, prompting wild celebrations from Krajinovic's coach, Petar Popovic, who was topless as he shook his fists in delight.
"We started four months ago and it's going unbelievable," Krajinovic said. "I knew him since I was 10."