She will play two-time Wimbledon champion Petra Kvitova, who beat Serbian qualifier Aliaksandra Sasnovich 6-1, 6-2.
Barty then stormed to a 3-0 lead in the third, before again letting it slip from her grasp as Kvitova won it in a tiebreaker.
Both women broke each other three times in the third set, including back-to-back efforts from Barty as Kvitova served for the championship twice.
Forced to serve to stay in the match at the end of the second set, Czech number five seed Kvitova fought back to break Barty for the first time to take the set and send it to a decider. They traded two more breaks in the last two games to reach the deciding tie break that the more experienced player grabbed 7-3 with a forehand cross court victor in that 10th point to lift the title and extend her winning streak in the WTA finals.
Nevertheless it was a brilliant week for Barty heading into the Australian Open. "For sure, it's hurting not to win at home", Kvitova said after closing out the match in two hours, 19 minutes. But a seemingly tired Kvitova, bending over after almost every point at this juncture, handed another break back to Barty with consecutive double faults at the end of the game.
Incredibly, the momentum shifted once more, with Barty breaking the Czech to love to keep her hopes of a first Sydney title alive, but the Australian's composure deserted her as she lost the next game on serve to give Kvitova another chance.
"I left everything out here but it wasn't quite enough", Barty said.