Top seed Djokovic, still seeking an elusive Olympic title to sit along his 24 Grand Slams, defeated Lorenzo Musetti 6-4, 6-2 in a nail-biting semi-final during which he was handed a code violation for swearing at the chair umpire.
Alcaraz earlier became the youngest men's finalist since tennis returned to the Games in 1988 when he swept aside Felix Auger-Aliassime 6-1, 6-1.
Sunday's title match at Roland Garros will be the pair's seventh meeting and follows on the heels of Alcaraz defeating the Serbian star in the Wimbledon final three weeks ago.
"It was a tense match, there were a lot of expectations and stress in the match. I want the gold but this is already a huge result," said Djokovic.
"I had lost four semi-finals so I wanted to get over this hurdle."
The 37-year-old Djokovic, who only has a bronze medal from 2008 in Beijing to show for his Olympic efforts, showed no sign of the right knee injury he aggravated in Thursday's quarter-final win over Stefanos Tsitsipas.
He said Alcaraz, who won the French Open at Roland Garros in June, will be the favourite on Sunday.
"It will be the biggest challenge, facing him on this court," he said.
"He beat me at Wimbledon. But these are different circumstances and I feel I am a better player than at Wimbledon.
"I will come out and play my best tennis. I have nothing to lose so I will just go for it."
Djokovic's desire to reach the final boiled over in the second set against Musetti when he was twice warned for taking too long to serve, then clashed with the umpire, before settling back into his winning rhythm.
Djokovic wasted four break points in the fourth game of the opening set before he broke in the 10th game to secure the advantage.
The first four games of the second set went against the server and sandwiched Djokovic's mini-meltdown.
But the world number two broke for 4-2 and then cruised to victory.
