Priestland will be replaced by James Hook at Eden Park on Saturday after he failed to recover from the shoulder injury he suffered in the final minutes of the quarter-final victory over Ireland in Wellington.
Priestland was given as long as possible to recover but he is still needs to undergo rehabilitation over the next few days.
"Time was against Rhys," said Wales coach Warren Gatland, who has also named Stephen Jones on the bench.
"But we are happy that we have the talent and ability elsewhere in the squad to cover him.
"Rhys has done everything we have asked of him, and more, during this World Cup.
"But when we have players of the calibre and experience of James Hook and Stephen Jones coming into the squad and starting line-up, there is no sense that Rhys' absence leaves us any weaker."
Despite having reached their first semi-final since 1987 and being just 160 minutes away from possibly lifting the Webb Ellis trophy, Gatland insists his side are not getting carried away.
And although they have been the surprise package of the tournament, Gatland will be aware that Wales have lost nine of their last 11 games against France
Gatland added: "We know that the people in Wales and the fans that have travelled here are excited about reaching the semi-finals of the World Cup, and we are too, but beating France on Saturday must be, and will be, our sole focus.
"The time to reflect and to celebrate will come if we win our next two matches. Until that happens, our focus on the task ahead must be absolute."
Wales: 15 Leigh Halfpenny, 14 George North, 13 Jonathan Davies, 12 Jamie Roberts, 11 Shane Williams, 10 James Hook, 9 Mike Phillips, 8 Toby Faletau, 7 Sam Warburton (captain), 6 Danny Lydiate, 5 Alun Wyn Jones, 4 Luke Charteris, 3 Adam Jones, 2 Huw Bennett, 1 Gethin Jenkins. Replacements: 16 Lloyd Burns, 17 Paul James, 18 Bradley Davies, 19 Ryan Jones, 20 Lloyd Williams, 21 Stephen Jones, 22 Scott Williams.
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