For Thiem, it was revenge after losing to the Spaniard in finals at Barcelona and Madrid - and hinted at a possible title charge at the French Open, which begins later in May.
And it paid dividends during the opening stages of the first set, with Thiem securing a double break within just 23 minutes to open up a 4-1 lead.
Sharapova won the title in Birmingham in 2004 and 2005.
The Austrian won 6-4 6-3 against the 14-time Grand Slam tournament victor in Rome for only his second victory in six meetings between the two.
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Thiem, the No.8 seed, will face four-time champion Novak Djokovic or Juan Martin del Potro in the semifinals.
The victor of that match will face Thiem in the semi-finals on Saturday.
Having shown signs of life in clawing one game back, Nadal - returning to stay in the set - started with two ferocious winners and saw Thiem send one long to give the King of Clay two break points.
Serving for the set for the second time, Thiem produced a more accomplished game to halt Nadal's fightback and move ahead.
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In the women's tournament Simona Halep continued her good run on clay as she booked a spot in the semifinals with a 6-2, 6-4 victory over qualifier Anett Kontaveit.
Despite the defeat, Nadal remains a 17/20 favourite to win the French Open with Djokovic (5/1) his nearest rival before Thiem (12/1) comes in at third-favourite.
The other semifinal pits John Isner against No. 16 seed Alexander Zverev.
Zverev beat fifth seed and 2014 semi-finalist Milos Raonic 7-6 (1), 6-1.
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Isner prevailed 7-6 (7-3) 2-6 7-6 (7-2), with the help of 21 aces, to record only his second win against the Croatian.