Nottingham's Holt, who turned professional in 1996, has won two PTC events but had never previously been beyond the last eight of a ranking tournament. Now the 35-year-old is just two wins away from the £80,000 top prize.
He ended the giant-killing run of world number 100 Kyren Wilson, who had won four matches to qualify before knocking out Stuart Bingham and Marco Fu. Breaks of 85, 64 and 80 helped Holt to a 5-1 success.
"It feels brilliant," said Holt. "Kyren has great potential so it's a good win for me. The scoreline makes it looks easy but it wasn't like that, you go through so many emotions in a match. I felt in control of myself, which is the main thing for me because then someone has to play well to beat me.
"Kyren has proved this week that he can play in a big arena which is a big step for anyone. I'm disappointed that I haven't done this before but that's in the past and I can only look forward. I feel great physically and mentally."
China's 24-year-old Xiao, whose previous career best was reaching the quarter-finals of the PTC Grand Finals in each of the last two seasons, scored a 5-4 win over Mark Davis, who had been bidding for three consecutive titles having won the 6-Red World Championship and General Cup.
Davis made breaks of 63, 71 and 87 in building a 4-2 lead, but Xiao dominated the last three frames, helped by two runs of 61.
"I still had some problems in the first half of the match like yesterday and it wasn't going well," said Xiao. "My opponent was playing pretty well and left me few chances.
"I took a rest in the interval and my coach calmed me down. I managed to play a more open game in the second half and I was concentrating on the game itself, which is important.
"I used to think about the result but I have changed my mindset this time. Terry Griffiths has helped me a lot on many departments of the game, especially break-building."
Davis said: "I played well to go 4-2 up but after that it was a struggle. My concentration went a bit."
