The Joeys were on the brink of elimination, trailing 3-2 in the first minute of injury-time, before captain John Roberts's 91st minute goal forced the semi-final straight to a shootout.
Louis D'Arrigo opened the scoring for Australia Under-16 in the 28th minute before Thailand Under-16 evened the ledger in the third minute of first-half injury-time.
Thailand Under-16 went ahead 2-1 in the 47th minute, before Roberts headed home a powerful equaliser off a swinging D'Arrigo corner.
But the Joeys again found themselves having to fight back - after turning the ball over to the Thailand Under-16, who capitalised on the mistake and went ahead with 28 minutes to play.
Facing an early exit it was Roberts, after bagging a hat-trick in their last-up win, who proved the hero.
Tony Vidmar's side then held their nerve the better of the two sides in a dramatic shootout, with Bryce Bafford firing home the winning penalty to spark wild celebrations.
The Joeys will face Vietnam Under-16, who they lost 3-0 to during the group stage, in Saturday night's (AEST) final.
