Serving for the match in the third-set tiebreaker, the 21-year-old from Thornhill, Ont., blasted his 24th ace to finish off the No. 3 seed in two hours 43 minutes.
Raonic advanced to his first semifinal at the tournament after losing to Rafael Nadal in the second round the last two years.
"I've finally gone through and it feels good," said Raonic, the sixth seed in Tokyo. "I've lost before against one of the best, but I've had a lot of opportunities at this tournament.
"I'm hoping to keep using them."
Raonic, ranked 15th in the world, will now take on Britain's Andy Murray in the semis after the top seed defeated No. 7 Stanislas Wawrinka of Switzerland 6-2, 3-6, 6-2.
Raonic lost in the U.S. Open's round of 16 to Murray, the eventual champion.
"The last part of the tournament is a lot different than the first part," said Raonic, who will face the No. 3 player in the world for just the third time in his career. "But getting to the weekend is what you are here for, what you are working for."
The victory over Tipsarevic keeps Raonic's hopes alive for a place at next month's eight-man year-end World Tour Finals in London. Tipsarevic, ranked ninth in the world, is also in contention.
Raonic — who also defeated Tipsarevic earlier this year in a three-hour final at the Chennai Open in India — dropped the opening set despite leading 3-0 in the tiebreaker.
The Canadian rallied in the second set, breaking for 3-1 and held the margin to level the match at one set apiece.
"He helped me out a bit in the second set and I was able to take advantage," Raonic said. "I went for my shots and it all came together."
Tipsarevic got out of danger in the third set, saving four break points in the eighth game and holding on for 4-4.
He earned the first match point in the tiebreaker, but lost it on a powerful Raonic serve.
Raonic missed his first match point chance when his backhand went long but earned the win a few moments later on his second opportunity with an ace.
"I'm happy to get through, I did a lot of things really well," Raonic said. "I played especially well on the big points."