This was the first meeting between the pair since the 2002 Wimbledon final which Hewitt won for the loss of just six games.
And the 23-year-old looked on course for another easy win when he raced through the first two sets in 76 minutes to put one foot in the semi-finals.
The match itself may have been lacking drama at that stage, but there was plenty of tension on court with the players twice exchanging words at the change of ends.
The source of the tension again seemed to be Hewitt's habit of shouting 'Come on' after winning crucial points, Nalbandian admitting before the match his fellow players did not take too kindly to it.
Nalbandian had spent almost 13 hours on court before this match and could have been expected to fade in the third set as he tried to come back from two sets down for the first time in his career.
But in a strange third set - with fireworks celebrating Australia Day in a nearby park punctuating the exchanges - the ninth seed broke Hewitt's serve three times in succession to take it 6-1 in just 30 minutes.
Hewitt had needed on-court treatment for a hip injury during his epic five-set win over Rafael Nadal in the previous round, and he called for the trainer again after losing the fourth set 6-3.
After the players had swapped breaks in the first two games of the set, Hewitt served two double faults in a row to gift Nalbandian another break in the fifth game. Yet another break three games later meant the Argentine had the advantage of serving first in the decider.
It was Hewitt who came closest to breaking serve, and could have been made to rue netting a simple forehand in the 11th game. But the former world No1 finally made the vital breakthrough in the 17th game and served out for a stunning victory.
Earlier in the day, Roddick's stroll through the championships continued when Nikolay Davydenko was forced to retire from their quarter-final.
Roddick was two sets to love and 4-1 ahead when Davydenko indicated he was unable to continue in the stifling heat in Melbourne.
The Russian had received treatment on court during the second set, using an inhaler and wearing an ice vest during the change of ends as he seemingly struggled to catch his breath.
