Joshna went down 14-12 7-11 3-11 6-11 but not before making the second seed English opponent work hard for every point in a contest that lasted 41 minutes.
A six-time quarter-finalist since 2007, Londoner Waters earned only her second-ever semi-final berth in Hong Kong where she will renew her rivalry with top seed and World No.1 Malaysia's Nicol David.
The 11-time Indian champion from Chennai was celebrating her first ever appearance in the last eight of a World Series event after upsetting the No.7 seed Natalie Grinham and 15th seed Line Hansen in the previous two rounds.
"I'm happy with my performance, because I've been training very hard, and the hard work is paying off," said the jubilant 20-year-old from Cairo afterwards.
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"Beating Dipika is very important for me, because she's had some really great results lately, and it's even sweeter because it's my first time ever in Hong Kong!"
In the men's section, Saurav Ghosal went down against fourth seed Nick Matthew, the reigning and three-time World Champion from England.
"Credit to @SauravGhosal tonight," tweeted Matthew later. "He played a perfect game for that court & made me play really well to win @HKsquash".