Thiem saved the lone break point he faced against the big-serving Canadian, which came as he served for the match at 5-4 in the third set.
The longtime foes have amassed 37 Grand Slam titles between them - Federer with 20 and Nadal with 17 - and built a unique relationship over 15 years and 38 prior matches, not to mention countless promotional and charitable activities off the court together.
The Nadal-Federer match will be the 39th between the two all-time greats and their ninth consecutive contest on hard courts.
"Definitely some things I would have liked to do better, but I thought, you know, I competed and I tried to figure things out as best as I could", said Raonic, who has made it to at least the quarterfinals at this event in the past five appearances.
It looked like a another final set breaker in the desert was in store until Thiem hit back-to-back winners off Federer drop shots that set himself up for the break.
Thiem was broken just four times out of 61 service games in the tournament.
"It was a great week and I think also a very good final today".
There were no break points in the first seven games until Federer threatened, but Thiem held firm.
In the second, it was very almost over in straights as Thiem had to save two break points (effectively match points at that moment) at 1-1.
'It's tough against Roger, Rafa (Nadal), Novak (Djokovic),' Thiem said.
Roger Federer was the overwhelming favorite to win the title in Indian Wells after a compelling run that allowed the Maestro to get to the final without dropping a single set and after spending not much time on court.
Federer, seeking a record sixth Indian Wells crown, reached the final when semi-final opponent Rafael Nadal withdrew from the tournament with a right knee injury.
The duo have met on four occasions previously, the last of which was Federer's 6-2 6-3 triumph over Thiem in London during the World Tour Finals in November. Federer won in straight sets, marking his fifth-straight victory in the rivalry. "The second one, if he doesn't pick it up quick, he's not going to be there, but he did", Federer said.
Following the defeat, Federer said that though he is frustrated and disappointed to some extent, he admitted that Thiem was better than him when it really mattered. I had to fight to save those break points early in the second set.
"It is hard for me to answer, because anything I say can be taken negatively, nobody can guarantee anything that will happen the next day because, in this world, anything is possible".