Pegula shook off a first-set stumble to defeat fellow American Amanda Anisimova 1-6 6-4 6-3 in the other semi-final.
Svitolina secured her second consecutive victory over the world number four in a gruelling three-hour encounter, having previously beaten Gauff in straight sets at last month's Australian Open quarter-finals.
Two-times Grand Slam champion Gauff struggled with double faults throughout the opening set as Svitolina seized control, breaking decisively to claim it 6-4.
Gauff roared back in the second set, displaying her trademark fighting spirit to force a tiebreak. The American saved four match points in a breathtaking 15-13 tiebreak thriller, keeping her hopes alive and electrifying the Dubai crowd.
The momentum swung back and forth in the decider, with the ninth game proving pivotal as it repeatedly went to deuce. Svitolina eventually held her nerve to edge ahead 5-4 before serving out the match to seal a hard-fought victory.
"I'm speechless after that fight. I was really trying to put myself out there, playing as if there was no tomorrow," Svitolina said.
"It's really special to be in the final again after a few years. Coco is such a big fighter. I was expecting her to come back in the match. She's won so many big tournaments. I'm very pleased with the fight and the win."
World number six Anisimova took less than half an hour to win the first set before building a 3-1 lead in the second. But Pegula held her nerve and broke Anisimova three times in a row to win the second set, before securing victory in the decider.
"I held on to my serve there in the second set. I just kept telling myself that I had some break points in the first set, even though it was convincingly the other way, and I knew I could get some break points back," 2024 US Open finalist Pegula said.
Pegula drew her opponent into longer rallies as she plotted her comeback, making Anisimova run back and forth with short slices and won the second set with a powerful backhand, as Anisimova's hasty return went long.
An exhausted Anisimova found the net while attempting a drop shot, setting up Pegula's break point to take a decisive 3-1 lead in the third set, clearing the path to her eighth WTA 1000 final.
