The 37-year-old American, going for a record-equalling 24th Grand Slam singles title, led 5-1 in the decider but lost 6-4 4-6 7-5 in Melbourne.
“I think she just played lights out on match points,” Williams said.
“I took my chances,” said Pliskova who won on her third match point.
Former world number one Pliskova will meet Japan’s fourth seed Naomi Osaka in the last four on Thursday with eighth seed Petra Kvitova taking on unseeded American Danielle Collins in the other semi-final.
Williams, seeded 16th, played down an ankle injury which she suffered during the rally on her first match point when serving at 5-1, 40-30.
The seven-time Australian Open champion did not win another point on serve after the incident.
“She was hitting lines and went crazy. She played unbelievable on match points,” Williams said.
“It was nothing to do with my ankle. Obviously, I made some mistakes but she played really well.”
Williams’ inability to seal victory means a highly anticipated rematch of her controversial US Open final defeat by 21-year-old Osaka must wait.
Like Osaka, Pliskova will be playing in the Australian Open semi-finals for the first time and is one victory from appearing in her second Grand Slam final, following defeat by Germany’s Angelique Kerber in the 2016 US Open.
Pliskova had led by a set and a break at 3-2 before the momentum swung to Williams and victory appeared a formality after she won nine games out of 10 and set up a match point.
But the momentum then swung back again to Pliskova in a chaotic encounter.
“I was almost in the locker room but now stand here as the winner,” she said.
“My mind was in the locker room at 5-1 down but I was still here. I was too passive and mentally down but she got a little bit shaky.
“Naomi Osaka is dangerous but there is nobody more dangerous than Serena.
Former world number one Williams was considered the favourite to win the women’s singles, and a first major title since giving birth to her daughter in September 2017, despite not playing competitively since losing to Osaka in New York.
An eighth triumph in Melbourne would have seen her move level with the 44-year-old major wins record set by Margaret Court – but she lost in remarkable circumstances next door to the stadium named after the Australian.
After fighting back from an error-strewn first set to level, Williams manoeuvred herself into a winning position as Pliskova looked beaten in the decider.
Then came a gripping finale which left Williams – and those watching on Laver – stunned.
Holding match point at 5-1, Williams was called for a foot fault and then lost a rally with a forehand into the net.
That was compounded by her appearing to turn her ankle in the process, with a double fault and unforced backhand error giving Pliskova the break – and a glimpse of hope.
Pliskova seized that opportunity and the momentum which came with it, breaking to love for 5-4 and then holding serve, after saving three more match points, to level.
Williams’ serve disintegrated as Pliskova, with the help of a double fault and then a rasping forehand winner for 0-40, broke to love again which left her serving for the match.
Despite a minor blip as Williams saved two match points, Pliskova held her nerve to claim victory in two hours and 10 minutes.
