Raonic, ranked 13th in the world, regained his composure to beat his fellow Canadian 6-4 1-6 7-6(4) and reach his first Masters series final.
His opponent in Sunday's title match will be Rafael Nadal, who overcame Novak Djokovic 6-4 3-6 7-6(2), the Serb producing a shockingly poor tie-break to decide the match
"I'm very happy at this moment," said Raonic, who will move into the world's top 10 for the first time after reaching the final.
"It's (top ten ranking) been a very important thing for me, a big objective."
Raonic needed all his superior experience to win through, as Pospisil, ranked 71st, fought from a set down to nearly pull off an upset.
Raonic made the more assured start in front of a large and vocal crowd, basking in the knowledge that a Canadian winner was assured.
A solitary break of serve was all that separated the two in the opening set as Pospisil adopted an aggressive approach that produced mixed results.
He capitalised on some sloppy play from Raonic to win the second set and force a decider that went the distance.
Both players traded winners from all parts of the court before Raonic sealed victory as he became the first Canadian in more than 50 years to reach the final.