In set one, a number of errors piled up from Sharapova, as she appeared tired from several matches earlier in the week. Pennetta on the other hand delivered a solid game, striking only five unforced errors as she broke serve early before leading 5-2.
The Italian secured the set 6-2 as the former WTA Tour world number one Sharapova sent a forehand long on setpoint.
In a see-saw second set, Pennetta broke serve early to reach 2-0 and then converted a second break of serve to reach 3-2 as Sharapova netted a forehand crosscourt.
Sharapova broke back immediately to even the set at 3 all before delivering an ace on gamepoint to go ahead 5-4.
Pennetta doublefaulted on set point as Sharapova leveled the match at one set all.
But although Sharapova screamed and attacked on most every ball, she again in the final set was plagued by errors and poor serving.
Two Sharapova doublefaults and a backhand down the line hit long awarded Pennetta a break of serve and a 1-0 lead.
Hitting her groundstrokes early and with extreme pace, Sharapova broke serve to move ahead 3-1. However a doublefault from the Russian on breakpoint put the final set back on serve at 3-2.
Pennetta, the 2008 L. A. runner-up, ran down many of Sharapova's groundstrokes as the Russian's serve would let her down once again as she would drop serve to trail 3-5.
Serving to stay in the match at 30-40, Sharapova saved the first matchpoint with a crosscourt forehand winner.
But the Russian would strike her 16th doublefault and follow it with a forehand down the line wide to end the semifinal.
Am I happy with where it is? Absolutely not, Sharapova said. I feel like there's more work to be done. There's nothing that a basket of balls can't achieve.
I was surprised it actually went to the third. I had my opportunities, I just couldn't close it out.
In Sunday's championship final, Pennetta is to meet the 13th seeded Samantha Stosur of Australia.