The first Chinese to reach the last four at Flushing Meadows, a shell-shocked Li crumbled to a 6-0 6-3 loss in 87 minutes on Arthur Ashe Stadium's centre court.
The 31-year-old has long been accustomed to the glare of the Grand Slam spotlight, winning a French Open two years ago and reaching her second Australian Open final this year, but was already overwhelmed by the occasion before hitting a ball.
"It's not about the technique," Li said. "It's about the problem with myself.
"First time in the semis, I was thinking about the situation. Today, it doesn't matter who the opponent is. The problem is myself."
Asia's first Grand Slam singles winner, Li lost the first set in 29 minutes and despite taking an early break in the second set, slumped to 5-2 and the brink of defeat.
Only then did she produce her best and most aggressive tennis, saving six match points and forcing the defending champion Williams to serve out the match.
A sometimes reluctant standard-bearer for Chinese tennis, the world number six has blown hot and cold throughout her career, her seven WTA singles titles often bookended by wretched form slumps when her confidence deserts her.
"Even if today I was playing against (a player with) the ranking of 100, (there would) still (be) the same problem," she said.
"When I walked to the court, I was feeling like the court was so big. My side was feeling like a football court.
"I cannot focus. In the end, finally I can play tennis."
Williams will face Belarusian second seed Victoria Azarenka in Sunday's final, a mouthwatering re-match of last year's title-decider.