The 23-year-old had never been beyond the fourth round of a grand slam and the gulf in class showed as he lost in three sets – 6-2, 7-6, 6-2 – at the Rod Laver Arena in Melbourne.
But his brilliant campaign will see him rise from 49 into the top 25 in the world rankings, which will be updated on Monday.
Edmund was shouldering British hopes due to Andy Murray’s injury and had previously seen off US Open finalist Kevin Anderson and third seed Grigor Dimitrov.
He was looking to join Murray and John Lloyd as the only British male singles finalists at Melbourne Park in the Open era.
But Cilic, the sixth seed, proved a bridge too far and the Croatian, a former winner of the US Open, succeeded where other opponents had failed in nullifying Edmund’s forehand.
He will play Roger Federer or young Korean Chung Hyeon in Sunday’s final.
Cilic, speaking afterwards in his on-court interview, predicted big things for Edmund, saying: “He’s playing great tennis.
“The last couple of years he’s improved a lot and started great this year.
“He had an extremely tough run to the semis, a couple of five-setters and a couple of four-setters as well.
“Definitely it left some scars on his body.
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“I can feel that too, but definitely he’s got a bright future in the game and we’re going to be seeing him a lot.”
Edmund was expected to overtake Murray as Britain’s No 1 ranked player if he had reached the Australian Open final.