Jordan De Goey produced one of the best performances of his career as the Magpies posted an 8.10 (58) to 8.9 (57) victory in Friday night's preliminary final at the MCG.
The minor premiers were held goalless in the second quarter and trailed by as much as 17 points during the third.
But Collingwood, who will meet the Brisbane Lions or Carlton in the September 30 decider, stood up when the game was on the line despite losing Daniel McStay to a knee injury.
McStay kicked two goals before he was subbed out of the match at three-quarter time and Mason Cox booted the Magpies' only major of a tense final term.
The narrow win in front of 97,665 fans was a reversal of last season's one-point loss to Sydney in a preliminary final.
"We've got ourselves in this position and we're really proud of our journey," second-year coach Craig McRae said.
"Two years of doing one-on-one fight drills, we do it every session ... I don't know how many hours that is but you saw some of those contests in the last quarter and how much we'd rehearsed those moments.
"We sit on this and take a little bit of a breath and be really proud of what we've achieved so far."
De Goey (34 disposals, 13 clearances) was superb and Brownlow Medal favourite Nick Daicos (28, six) worked his way into his return match after seven weeks out with a knee injury.
Steele Sidebottom, Scott Pendlebury and Isaac Quaynor were also important for the winners.
Their combined displays overwhelmed GWS despite the best efforts of Tom Green (31 touches), Josh Kelly (33), Lachie Whitfield (26) and Toby Greene (two goals).
The Giants lost Brent Daniels to a concussion test late in the match - which he passed - and Greene almost kicked a brilliant goal from the pocket to put them back in front.
The captain was denied by Sidebottom's mark on the goal-line.
GWS sat 14th after the bye rounds and qualified for the finals in seventh spot, winning two cut-throat finals on the road to reach the last four.
"I'm certainly very proud of the group, of their development, the way they fight, the way they hang in every game, the way they play to the last minute," first-year coach Adam Kingsley said.
"They're a really special group. We need to make sure we maintain that level and improve."
McStay and Jack Crisp gave the Magpies a perfect start with goals in the opening six minutes of the match before Daicos entered the fray to huge cheers from the black-and-white faithful.
The huge crowd was left stunned as GWS booted four unanswered goals in the second term and held Collingwood to their lowest first-half score of the season.
The visitors led 4.4 to 2.6 at the main break.
Greene opened the second half with a quick snap but the Pies piled on five majors to one in a 12-minute burst to hit the front before the final change.
Cox and Jesse Hogan traded ice-cool set shots at opposite ends during the last quarter, with the latter cutting the Magpies' lead to one point as a tense term ticked into time-on.
Despite De Goey being stuck on the bench in the final stages, Collingwood held on to seal their first grand final since the 2018 heartbreak against West Coast.
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