Federer, 33, will be playing in his 10th Wimbledon final on Sunday and 26th at all the Grand Slams where victory will give him an eighth All England Club crown and 18th major.
His demolition of 2013 champion Murray was his most impressive in recent years and featured 20 aces, 56 winners and just 11 unforced errors.
He allowed Murray, who he has now defeated in five out of six Grand Slam clashes, just one break point and that was in the opening game of the two hour seven minute match.
Djokovic, who beat Federer in last year's final, had earlier swept into his fourth Wimbledon final with a ruthlessly efficient 7-6 (7/2), 6-4, 6-4 victory over Richard Gasquet.
PHOTO: AFP
"It's been tough, Andy has been playing very well this season and there was so much expectation on this match," said Federer, who is the oldest finalist since 39-year-old Ken Rosewall in 1974.
"I had to try to focus and keep holding my serve one more game. You do it so many times you think the break will go against you eventually, but I managed to hold on.
Read: Murray to face Federer in Wimbledon semi-finals
"I was unbelievably happy. I maybe didn't show it at the end because the crowd went quiet. People maybe expected it to go four sets, me as well.
"My serve was the key. I've been serving very well in this tournament."
Murray said he had served well and was happy with his performance.
"Roger served fantastic. I had one break point in the first set but after that I didn't get any opportunities," admitted Murray who was looking to make the Wimbledon final for a third time.
"The pressure built and I was broken at the end of all three sets. But I didn't play that badly. I had a good match."ederer fought off a break point in the opening game, but then neither man blinked until the Swiss carved out his first opportunities in the 12th game.
Murray saved the first set point with an accurate, low drive into the corner but was helpless on the second when Federer drilled a return to his feet which the Scot could only nudge into the net.
Federer fired 11 aces, 23 winners and committed just three unforced errors.
Murray was fortunate to fight off another break point in the fourth game of the second set when Federer shanked a backhand wide with an open court at his mercy.
Murray then saved five set points in an incredible 15-minute 10th game which went to seven deuces. The fifth was saved after a 21-shot rally.
But the Federer siege continued and he got the breakthrough in the 12th game, opening the court before swatting away a high, loose response from Murray.
Serve dominated the third set until the 10th game when an unreturned backhand took Federer to match point which he converted when Murray went wide with a forehand.
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