World number one Nadal, bidding for his 11th victory at the clay court event, won 6-0, 6-2 in just 67 minutes, BBC Sport reported.
Nadal, 31, will meet Bulgarian fourth seed Grigor Dimitrov in the last four.
Dimitrov reached his first Monte Carlo semifinal with a 6-4, 7-6 (7-5) win over Belgium's David Goffin, who was leading 5-1 in the second set.
Thiem, 24, was considered by many as Nadal's biggest threat in Monte Carlo, having beaten the Spaniard on his favored clay surface in Rome last year and winning against Novak Djokovic to set up the quarterfinal match.
However, the world number seven – aiming to become the first player to beat Djokovic and Nadal in the same clay-court tournament – was completely outclassed.
Nadal took the first set in just 31 minutes, winning four of his 11 break points and not facing one against his own serve.
Thiem avoided a double-bagel defeat by holding serve to trail 3-1 in the second set and was rewarded with a sympathetic ovation from the crowd.
But he failed to threaten Nadal's serve and the 16-time Grand Slam champion eased to an emphatic victory.
Nadal, who is aiming for a record-extending 11th French Open title when the tournament gets under way on May 27, has now won 31 of his past 32 matches on clay.
"I think I played a great match – the best of the tournament," said Nadal.
"I played very aggressive, I knew I couldn't give Dominic time to hit the ball and I didn't."
Dimitrov and Goffin were playing for the first time since the Belgian suffered a freak eye injury during their match in Rotterdam earlier this year.
As a result 27-year-old Goffin is still wearing a special contact lens while playing, but it was his nerves which appeared to be the problem as he closed in on the second set.
Goffin failed to convert three set points on his own serve, tightening up as Dimitrov fought back to break twice to force a tie-break.
Dimitrov, ranked fifth in the world, clinched victory with his second match point as Goffin failed to avenge his defeat in the ATP World Tour finals last year.