Dimitrov passed up his first chance to serve out the match in a tense third set but made no mistake two games later to triumph in the day's opening match in London.
The sixth seed got off to the flawless start, winning his opening round-robin match in the Pete Sampras Group as he was able to keep his nerves in check to beat the Austrian 6-3 5-7 7-5.
The fourth seed was not as fortunate in game six, though, as a forehand miss handed Dimitrov another opportunity which he did not let slip before wrapping up the first set by holding to love.
"I'm not ready to play", Nadal said.
Thiem will play Nadal's replacement, fellow Spaniard and first alternate Pablo Carrena Busta, needing to win to keep his title hopes alive. "It's finally starting to kind of, like, come together".
It was Thiem, who made his debut at the event previous year, who started nervously, allowing Dimitrov to ease to the opening set. "And especially here, of course, a little bit because of all the atmosphere, arena", Thiem said.
Dimitrov broke in the seventh game of the decider to take control once more.
In the pair's most recent meeting, in Madrid, Thiem won after saving five match points and it appeared another remarkable escape might be on the cards.
In an error-strewn finale, it was somewhat fitting that a shot long from Thiem clinched victory for Dimitrov.
But Thiem hit back, halting the Bulgarian as he served for the match - only to then immediately donate his serve with two untimely double faults.
"I fought a lot knowing it was my last match of the season". I was like, Not again, definitely not again.