Diego Simeone's side came from behind to reach their first final in Europe's premier club competition for 40 years and keep alive their hopes of a Champions League and La Liga double.
A cagey first leg of the semi-final tie last week finished goalless, but former Atletico captain Fernando Torres put Chelsea in front on Wednesday - and was emotional as his team-mates celebrated - against his boyhood club, only for Adrian Lopez to equalise just before half-time.
Atletico took that momentum into the second half and Diego Costa - a reported Chelsea target - put them in front from the penalty spot with his 36th goal of the season after substitute Samuel Eto'o brought him down in his first involvement in the game.
And Arda Turan sealed Atletico's progress into what will be a first final - to be held on May 24 at Estadio da Luz - in the competition between two sides from the same city and ensure Jose Mourinho misses out on a showdown with his former club.
The Portuguese's wait to become the first manager to win the famous trophy for three different clubs goes on, and he will have to hope his side win the Premier League to avoid a trophyless first season back in London.
Mourinho was able to name fit-again captain John Terry (ankle) and Eden Hazard (calf) in his starting line-up, while former Chelsea midfielder Tiago replaced the suspended Gabi and also skippered the Atletico side.
Koke's cross-shot almost caught Mark Schwarzer out in the early exchanges, though Chelsea replied through David Luiz's audacious overhead kick, which flew narrowly wide.
The breakthrough finally came nine minutes before half-time as Willian displayed fine close control on the right before Cesar Azpilicueta cut the ball back for the onrushing Torres and his right-foot strike found the net via a slight deflection.
Torres refused to celebrate out of respect for his former club, but Atletico were euphoric a minute before half-time when Adrian capitalised on some hesitant defending to equalise with a scuffed right-foot effort from Juanfran’s cross.
The Spanish side had the bit between their teeth early in the second half and Terry was relieved to see Schwarzer thwart Turan with a fine reflex save following some poor defending from the centre-back.
Terry was next to go close at the other end, but Thibaut Courtois' razor-sharp reflexes denied his parent club.
Mourinho replaced Ashley Cole with Eto'o nine minutes before the break and he must have been ruing that decision soon after when the Cameroon striker upended Costa and referee Nicola Rizzoli awarded a penalty.
Costa was booked for time wasting as he struggled to get the ball to stay on the spot, but held his nerve to fire the ball into the roof of the net as Schwarzer dived the wrong way.
There was no let-up in the action and Luiz got on the end of Willian's inviting free-kick with a powerful header which struck the crossbar - Courtois somehow diverting the rebound over.
But any hopes of a Chelsea fightback were ended by Turan, who calmly tucked the ball into an empty net when the ball came back nicely for him after Schwarzer had tipped his powerful header against the bar 18 minutes from time.
Both Atletico and Real could enter the final as Spanish champions. Simeone's side will be seeking a first top European crown, with their local rivals out to clinch La Decima.
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