The two sides square off at The Oval in London from tomorrow
The world number one retired against Marin Cilic after an upper right leg problem began troubling him in the fourth set on Rod Laver Arena, with the Spaniard wincing in pain and limping as he struggled to continue.
His 3-6, 6-3, 6-7 (5/7), 6-2, 2-0 exit set up a last-four clash for the former US Open champion against Britain's Edmund, who stunned third seed Grigor Dimitrov 6-4, 3-6, 6-3, 6-4.
Mertens, who is yet to drop a set, was equally convincing in blasting past world number four Elina Svitolina 6-4, 6-0 to become the first Belgian to make the semis since Kim Clijsters in 2012.
She will play second seeded Dane Caroline Wozniacki on Thursday for a place in Saturday's final.
Wozniacki withstood a fightback from Spain's unseeded Carla Suarez Navarro to stutter into the semi-finals 6-0, 6-7 (3/7), 6-2.
Little separated Nadal and big-hitting Cilic until the injury struck, as they traded ferocious groundstrokes in an intense battle.
But the Spaniard, who was beaten in last year's final by Roger Federer, called the physio at 1-4 in the fourth set and again at the changeover when two sets apiece and the writing was on the wall.
"It was an unbelievable performance from both us," said Croat Cilic, the sixth seed. "It is really unfortunate for Rafa to finish this way."
Nadal's retirement follows the departure on Monday of Novak Djokovic, with his immediate playing future uncertain after an elbow injury flared. He also appeared to have a hip problem.
There were no such troubles for Edmund against Dimitrov, as he became only the fourth British man to reach the Australian Open semifinals in the post-1968 Open Era.
"It's an amazing feeling. I'm very happy," said the overwhelmed 23-year-old, ranked 49.
"It was a hard match and I'm really trying to enjoy the moment. It was my first match on Rod Laver Arena and it's very special."
He is the only British man in the draw after Andy Murray's injury withdrawal before the tournament, raising the prospect that it will be him, rather than the Scot, who breaks through to win in Australia.
Murray has been a five-time finalist, but lost them all.
World number 37 Mertens is on a hot streak of form, unbeaten in 10 matches after winning in Hobart this month.
She was too physical for Svitolina as she stormed into the semis, incredibly on her Australian Open debut. "It's amazing. I mean, it was not expected, especially today. Really tough match," said the Belgian world number 37.
"But I was in the zone today. If you believe in yourself, then anything can happen. But of course semis is "Wow."
Svitolina blamed a hip injury for her shock ousting as she again failed to get to the last four of a Grand Slam on her 22nd attempt.
"It was my hip. I started to feel it actually after the final in Brisbane," she said, referring to the warm-up tournament she won.
"It's been there all the time. I had pain all the time. But with painkillers, it was fine."
Romania's Halep plays her quarterfinal against sixth seed Karolina Pliskova on Wednesday.
The two sides square off at The Oval in London from tomorrow
The NGO has empowered thousands of refugees to seize life-changing opportunities and migrate for work in various refugee hosting countries
The central probe agency was roped in by the Ministry of Railways after a preliminary inquiry flagged possible tampering with the electronic interlocking system
Small cameras, robotic arms and surgical instruments were inserted using small entry holes in the woman's lower belly
Take a look at who features on this niche list
The diversion raises questions over how quickly the Boeing 777, a high-profile US-built plane whose engines are made by General Electric, can be repaired amid US and European Union sanctions on exports of aviation items to Russia
UAE economy to grow at the fastest pace in GCC over the next 2 years
In March, both the countries agreed to re-establish relations