A goalless first leg left the tie finely poised with a place in the May 24 Lisbon showpiece at stake against Jose Mourinho's former club, who emphatically ended Bayern Munich's title defence on Tuesday night.
"Champions of Europe, we've done it before," sang the home crowd as they urged the Blues on - and Fernando Torres gave Chelsea the lead against his former club.
But that was as good as it got for Mourinho's men. Adrian Lopez equalised just prior to half-time before Diego Costa's penalty and Arda Turan's tap-in set up an all-Madrid final.
It was Mourinho's fourth successive loss at the semi-final stage as the 2012 winners were eliminated and left to focus on their slim Premier League title hopes.
The Portuguese insisted he would stick to his defensive methods despite recent criticism - most fiercely coming from Liverpool boss Brendan Rodgers after the Blues' win at Anfield - and selected six defenders in his starting XI, three of them full-backs.
Chelsea were quickly on the defensive and, after a fourth-minute Atletico corner, Koke's cross-cum-shot went over Mark Schwarzer, hit the bar and ricocheted off Gary Cahill on to the roof of the net.
Cesar Azpilicueta began on the right wing, with Eden Hazard, who proved his fitness with some scintillating early runs, supporting Torres up front, but Chelsea struggled to test Thibaut Courtois.
The Belgian, playing his first match at Stamford Bridge as a Blues player on his third season on loan at Atletico, was untroubled by a series of set-pieces, Luiz coming closest with a bicycle kick which went narrowly wide.
A well-timed Cahill tackle thwarted Costa before a mis-timed challenge on the striker saw the Blues defender booked. Terry scrambled Koke's resulting free-kick clear.
Chelsea went ahead after Willian weaved through two attempted tackles in the right corner and the ball broke for Azpilicueta to cross first time.
Azpilicueta found his fellow Spaniard Torres, who slotted the ball under Courtois, albeit via a slight deflection off Mario Suarez.
It was the much-maligned £50million striker's first goal in two months, yet he refused to celebrate against the club where he made his name.
Atletico knew they needed only to equalise to advance on away goals and did so when Tiago's lofted pass was turned back into the box by Juanfran.
It deceived Ashley Cole, Terry and Cahill and was met by Lopez, whose shot into the ground looped into the net.
It was a devastating setback for the Blues, who nearly suffered another immediately after the restart.
A low Koke cross from the right caused havoc and Schwarzer saved from Turan at his near post.
Chelsea went close when Willian's free-kick was met by Terry, whose downwards header was well saved by Courtois.
Cole was replaced by Samuel Eto'o as Mourinho tinkered with his formation, throwing the Cameroon striker up front alongside Torres.
Eto'o's first involvement was in defence and resulted in a penalty.
The multiple Champions League winner mis-timed his bid for a bouncing ball and bundled Costa over, with referee Nicola Rizzoli showing no hesitation in pointing to the spot.
Costa was booked after taking his time to place the ball and an exchange of views with Branislav Ivanovic before drilling his penalty beyond Schwarzer for his eighth goal in eight Champions League matches this term.
Chelsea had 30 minutes to find the two goals they needed and David Luiz headed Willian's free-kick off the post with Courtois beaten.
Yet still Atletico attacked and Juanfran crossed for Turan, whose header ricocheted back to him off the crossbar to allow him to slot into the net.
Simeone scorched down the touchline in celebration and Chelsea, and Mourinho, had no answer.