Both teams came into this match knowing a win would most likely set up a dream final with Real Madrid.
The Brazilians were clear favourites ahead of the encounter, but were frustrated until the first period of extra time, when substitute Everton scored the winner.
Gremio showed their dominance early on with a couple of half-chances. Pachuca, however, did not sit back and also pushed for a goal, which created a very open game in the first period.
A pair of slightly over-hit free-kicks from Edilson and Fernandinho were Gremio’s best opportunities of the opening period, while Keisuke Honda saw an effort superbly blocked just before the referee ended the first-half action.
Gremio’s Luan came very close to breaking the deadlock on the hour mark, but his fizzing right-footed effort from outside the box was parried onto the post by Pachuca stopper Oscar Perez.
With 15 minutes to play in regular time, Gremio again earned a dangerous looking free-kick just left of centre. Edilson stood over it, but his dipping attempt flew agonisingly wide and hit the side netting.
Pachuca almost stole the show late on when Victor Alfonso Guzman rose highest to meet a lofted ball in the Gremio box, but his glancing header drifted narrowly wide of the post.
Luan had the final chance of the 90 minutes when a corner was swung in from the left, but his control let him down allowing Perez to collect.
Gremio finally broke the deadlock five minutes into extra time when Everton cut in from the left and unleashed a right-footed strike at goal. With Perez beat, the ball nestled into the top right corner, sending the Brazilian side’s fans into raptures.
As Pachuca pushed for an equaliser, Gremio looked even more dangerous on the break and Jael had a goal ruled out for offside before Luan fired just over from close range.
To make things worse for Pachuca, Guzman was also shown a second yellow card in the second period of extra time.
Everton’s goal eventually proved to be enough for Gremio to book their place in the final of the Club World Cup, where they will meet either Real Madrid or Al-Jazira in Saturday's final.