On an afternoon of high drama at Accor Stadium, Newcastle hooker Phoenix Crossland was sent off for the tackle that left Cleary with a compound fracture and dislocation of the ankle late in the first half.
Newcastle then fell 14-6 down at halftime, before managing to pull off one of the most unlikely comebacks in recent memory against the minor premiers while down a man in the second half.
The win sets up a grand-final date with the Sydney Roosters next Sunday, and makes them the first team to reach a decider from outside the top four since 2017.
They are also 80 minutes away from being the first team in almost a century to go from wooden spoon to premiers, with Newcastle playing their third grand final and hunting a third title to go with those in 1997 and 2001.
"It feels unreal. It felt weird for me, I got emotional after the game," Knights coach Justin Holbrook said.
"Seeing the players do what they do - particularly in the second half - it was a combination of what they were able to do.
"And then thinking about how many fans came down, the trains stopped and the traffic and it took four hours to get here ... for the players to win a game like that, couldn't be happier."
So much of the build up to Sunday's preliminary final had been about Cleary and the stress-related bone issues in his right foot, which eventually kept him on the bench for the first 25 minutes.
But the two-time Clive Churchill Medal winner lasted just 10 minutes before being brought down by Crossland, with the air going out of Accor Stadium.
Penrith medical staff were required to hold Cleary's left foot in place as he left the ground on a medicab, with the halfback taken to hospital in an ambulance.
The No.7 is expected undergo surgery on both feet.
"When all the boys went around the medicab, I actually got a bit emotional," Panthers coach Ivan Cleary said.
"I can't really explain what happened in the second half, I'd probably rather congratulate the Knights and Justin for an unbelievable performance."
Even with Cleary gone, Blaize Talagi going off with an Achilles injury and Dylan Edwards battling a ruptured PCL, Penrith still had enough ball to win the match comfortably and reach a sixth grand final in seven years.
Jack Cogger set up their first try starting in place of Cleary when he grubber-kicked early for Talagi, and Lindsay Smith also forced his way over for a try before halftime.
But Newcastle have routinely been a team that can score from anywhere in this finals series, and both of their first two tries again came from within their own end.
Bradman Best burst through Talagi to send Francis Manueleua over for the first try of the game.
The Knights got back into the game early in the second half when Sandon Smith ran it on the last and Dane Gagai and Manuleleua combined to send Dom Young over.
Smith then produced a moment of smarts to give the Knights the lead with 20 minutes to play, when cleared to take a quick tap after a Billy Phillips high tackle.
With the Panthers yet to reset their defensive line, Smith ran 50 metres to score and make it 16-14 as Penrith players protested whether the tap should have been taken.
As good as Newcastle's long-range attack was though, it was their line defence with 12 men that won them this game.
Mat Croker produced one play to dive on a kick with Kalyn Ponga out of position, and Ponga himself had a bone-rattling hit late on Moses Leota with Penrith on attack.
And then with Penrith attacking and a minute to play, Smith was again the hero as he intercepted a Liam Martin pass and sprinted 80 metres to score.
