Taylor, the 15-time World Matchplay champion, punished missed doubles from great rival Raymond van Barneveld to claim a comfortable 11-3 victory from their eagerly-awaited clash on the Winter Gardens stage.
The Dutchman missed chances in each of the first three legs as Taylor, aided by finishes of 61 and 64, moved clear, only to see Van Barneveld finish double seven and 76 to pull back to 3-2.
He also shared the next two to remain in touch at 4-3, but a miss at tops in leg eight to level the game allowed Taylor to scramble home double one in a key leg.
A brace of double 16 finishes moved Taylor clear at 7-3, and he also landed an 11-darter before securing the win by taking out 96.
"It was a lot easier than I expected," admitted Taylor, who is making his final challenge at the Winter Gardens before retirement. "Probably 11-9 would have been a more justified score, but Ray was unlucky and his doubles cost him.
"Raymond never gives in and his scoring was lovely, but a couple of his doubles let him down tonight and he's a better player than that."
Reigning champion Van Gerwen, meanwhile, continued his bid for a third straight Blackpool title by cruising to an 11-3 win over Australian Simon Whitlock, who was punished for 12 missed doubles.
Van Gerwen made a bright start by winning the opening two legs, with Whitlock hitting back in the third with a 14-darter - but after trading 180s with the world number one in the fourth he paid for missing two darts at double 13 to level.
Van Gerwen capitalised on double 16 and also took the next five legs to move into an 8-1 advantage, including an 11-darter and one 12-dart leg, as he pulled clear of the former European Champion.
A 13-darter from Whitlock stemmed the tide as he claimed his second leg, but Van Gerwen took out 78 and double ten to move 10-2 up, and responded to double eight from the Australian with a 13-darter to complete a runaway success.
"It was quite comfortable for me and I didn't have to worry too much, but I'd rather play a game that goes all the way," said Van Gerwen. "There's a lot more in the tank and I'm going to need it against Phil.
"I'm sure Phil will put me under pressure. He's still looking good and playing well and I'm looking forward to facing him because nobody has put me under pressure so far.
"I think I've got a huge advantage over him because my form is better and my confidence is good, but you still have to do the right things at the right moments and I'll have to do that on Friday."
The meeting between Van Gerwen and Taylor is a repeat of two previous Winter Gardens finals, and the 56-year-old Stoke legend added: "I'd like to wipe the floor with him - I find him cocky but that's the way I was!
"He's there to be beaten down but he's putting people under pressure. I'm enjoying every minute of it and I'm relaxed. It doesn't make any difference to me and if I win this then it would be great but it’s not the be-all and end-all any more.
"I suppose it's a bit bewildering how I'm talking because I've always been one who wants to win it.
"I do want to win it, but whoever plays me in the next round is going to have to play a relaxed Phil Taylor rather than somebody that's under pressure, and that's when you play better."
Lewis and Norris, meanwhile, set up a tasty quarter-final tie as they defeated Rob Cross and Dave Chisnall respectively in exciting clashes at the Winter Gardens.
Lewis - who made his return from a back operation on Monday by defeating Steve Beaton - was an 11-8 winner in a tight battle with shooting star Cross, who averaged 104 and hit eight doubles from 14 attempts.
However, it was Lewis who finished the stronger as he backed up nine 180s by claiming the final three legs without reply to secure his quarter-final spot.
Lewis landed three of those maximums in the opening two legs and also fired in a 177 score as he moved 4-2 up, before a brilliant 144 checkout retained his two-leg cushion at 5-3.
Cross responded brilliantly with a ten-darter in leg nine and levelled with a 14-dart finish, but crucially was unable to break Lewis' throw to move ahead as the Stoke ace landed a 121 finish at a key moment before pulling clear from eight-all for the win.
"I'm really happy," said Lewis, the 2013 World Matchplay runner-up. "I knew it would be tough because Rob had nothing to lose.
"He's an absolutely awesome player and I had to dig in there. I think he's world class and he can get into the top 16, without a doubt.
"For me to go up there and come through a game like that is really satisfying, especially with the preparation I've had because of the operation.
"I've barely practised for two months and I didn't expect anything coming into the tournament, so I'd have bitten off your hand if you said I'd get into the quarter-finals. I love playing darts and my hunger is there because I want to win."
Norris, meanwhile, defied 11 maximums from Dave Chisnall by following nine 180s of his own with five ton-plus checkouts as he secured a 14-12 tie-break triumph in a thriller.
Chisnall made a stunning start, hitting two 180s in seven perfect darts in the opening leg and another pair of maximums in leg two as finishes of 12 and 13 darts moved him ahead.
Norris hit back to level before taking out 120 and 126 to move 4-2 up, only for the momentum to swing again as Chisnall claimed five straight legs to move 7-4 up.
Norris then took five legs in a row, including a 110 finish, as he regained the edge at 9-7, and after Chisnall levelled the Bo'ness-based ace finished 90 for a break of throw to move 10-9 up.
Chisnall finished double 18 and 121 to move himself back ahead at 11-10, and also moved 12-11 up as the tension rose in the tie-break.
Norris, though, took the 24th leg on double five, fired home a 109 checkout to break and then finished 100 to secure his first quarter-final at the World Matchplay.
"I'm so pleased to have won that because I always seem to lose to Dave by the odd leg, so I'm very happy to come through a battle like that," said Norris.
"He made a brilliant start and he hurt me with some shots at times, and it was nip and tuck there. In the tie-break maybe I had some extra reserves and I got the job done.
"To be through to the quarter-finals is fantastic. It's going well so far and it's massive for me to be playing in front of great crowds like this.
"My scoring hasn't been great but my finishing - which is usually my downfall - has been great, so hopefully it will all come together in the quarter-finals."
The quarter-finals begin on Thursday with the two matches from the bottom half of the draw, with UK Open champion and number three seed Peter Wright taking on Darren Webster and Austria's Mensur Suljovic up against Northern Irish ace Daryl Gurney.
Following his second round triumph, Van Gerwen is now the 4/11 odds-on favourite with sponsors BetVictor, with Wright the 7/2 second favourite, Taylor a 12/1 chance to win in his final World Matchplay and Gurney a 16/1 shot to claim his maiden TV title.
Lewis and Suljovic are both 18/1 chances to lift the title, with Norris rated at 40/1 and Norwich’s Webster the 80/1 outsider.
BetVictor World Matchplay
Wednesday July 26
4x Second Round
Dave Chisnall 12-14 Alan Norris
Adrian Lewis 11-8 Rob Cross
Phil Taylor 11-3 Raymond van Barneveld
Michael van Gerwen 11-3 Simon Whitlock
Thursday July 27 (7pm)
Daryl Gurney v Mensur Suljovic
Darren Webster v Peter Wright
Friday July 28 (7pm)
Alan Norris v Adrian Lewis
Michael van Gerwen v Phil Taylor
Quarter-Finals - Best of 31 legs
4/11 Michael van Gerwen
7/2 Peter Wright
12/1 Phil Taylor
16/1 Daryl Gurney
18/1 Adrian Lewis, Mensur Suljovic
40/1 Alan Norris
80/1 Darren Webster
Quarter-Final Match Odds
8/13 Daryl Gurney v 5/4 Mensur Suljovic
1/7 Peter Wright v 9/2 Darren Webster
1/6 Michael van Gerwen v 4/1 Phil Taylor
4/9 Adrian Lewis v 7/4 Alan Norris