South African Anderson, seeded sixth, was playing in his first Masters 1000 semi-final but faded after a solid start.
He was stopped, however, going down 4-6 2-6 to Austrian fifth seed Dominic Thiem in their semifinal match.
Thiem, the runner-up to Nadal in the 2017 Madrid final and still chasing a maiden Masters title, will face German second seed Alexander Zverev, who swept past Canadian teenager Denis Shapovalov 6-4, 6-1, in Sunday's championship match.
"He played well and I didn't play well".
"Winning two titles in two weeks is great".
Coincidentally, it was Thiem who last beat Nadal on clay, at last year's Rome Masters, shortly before the Spaniard rampaged to a 10th French Open title without dropping a set.
Edmund had acquitted himself against a player rated as one of the game's rising stars, swapping breaks early in the first set before a sloppy final service game saw the British No. 1 fall behind.More news: Arsene Wenger Predicts European Super League Will Eventually Replace The Premier League
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Zverev has always been marked out as a future star of the men's game and his victory over Thiem suggests the German can be a major threat at the French Open later this month.
Nadal hadn't lost a single set on clay since falling to Thiem a year ago in the Italian Open quarterfinals.
Thiem was the last man to take a defeat, or take a set off, Nadal previous year in Rome before the Spaniard began his streak, and he was the man who ended it on Friday, nearly 12 months later.
The roof of the Caja Magica was closed without play being interrupted when it began raining in the second set.
"Of course I am disappointed", Nadal said. I am three in the (ATP Race), which is the most important thing. "We both should be very proud of this attractive final we played today".
"With Rafa, he's going to get into that forehand side of Zverev and make him play a lot more balls because he returns so much better than Thiem does standing from a deep position, so [whether he can beat Nadal] is still a big question mark", Rusedski explained. Thiem had never beaten Anderson in their six prior FedEx ATP Head2Head matchups, but they had never played on clay, Thiem's surface of choice.
'I think, overall, you know, playing best of five sets against him, also, there on Philippe Chatrier Court, I think the court is really big. "Now, I'm in the final again, which is fantastic to me". "To be honest, I thought also myself that I was pretty far away before this week started".