St. Declan's led by 1-6 to 4 points at half time.
John Power kicked four frees for the Waterford side while Donal Queally netted the only goal of the half just as the whistle blew it to a close.
Carndonagh star man Conor O'Donnell kept his side in the game through prolific scoring and drew the sides level 1-7 to 1-7 midway through the second half.
The Donegal school broke away to lead by 3 points, however Kilmac rallied, with John Power kicking a late brace of points and Reece Power netting the winning goal with just just minutes left on the clock.
St. Declan's Manager Geoff Collins said the manner of their win made it all the sweeter, saying that his side were "yet again able to find a way to win."
St. Declans will face Ardee Community School from Louth in the All Ireland final.
