After the two players held their serves for 4-all, Khachanov broke for the first time before bagging the first set 6-4.
The Serb threw his racket down in frustration as Federer again escaped from 15-40 down to move 5-4 ahead, but the Swiss star's magic fizzled out as the final set headed to a tie-break.
Djokovic saved three break points to reduce the deficit to 4-3, but Khachanov did not allow him a sniff of a break back and sunk to his knees to plant a kiss on the court after an errant backhand from the four-time Paris Masters champion secured the upset.
Karen Khachanov says his win over Novak Djokovic in the Paris Masters final was one of the biggest of his career so far.
Khachanov continued his strong recent form and easily won the second set 6-1 to reach the final to play against Novak Djokovic. He deserves it. He's a young player... up-and-coming.
"For the most part I can be happy, my level was good, but losing is never fun", said Federer.
A rasping serve down the tee sealed the set for the 22-year-old, with Djokovic looking flat and in need of inspiration.
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The Russian fully demonstrated his confidence later on, finishing quadruple breaks for a 6-1 second set victory. "I'm just really proud of myself that I could be in this list of winners".
"And in general, it's a breakthrough season", said Khachanov, who also won the Kremlin Cup in Moscow last month.
However, he has a 2-6 record against Federer with his most recent win over the 20-time major champion coming in 2014.
Djokovic rattled off six successive points to bring up five match points, clinching victory at the third attempt when Federer picked out the net to end a tense concluding rally.
"But overall I'm happy with my game".
Roger Federer, who has skipped the French Open the last two years, insisted Saturday he has "no idea" whether he will play at the clay-court Grand Slam next season. "And I told him to tell him to keep it down a little bit because he was going a little bit too much over the edge".
The 18th ranked Muscovite overpowered a third top-10 player in successive days, having hammered Alexander Zverev in the quarters and defeated John Isner in the last-16. And he showed great quality today and he showed why we're going to see a lot of him in the future.