Champion Djokovic demolished Spain's Pablo Carreno Busta 6-0 6-1. The Serbian is on the same side of the draw as Federer and heading for a semi-final with the Swiss fourth seed.
"I've had more time, compared to last year, to practice on the clay courts and to get my game to the level where I want it to be," Djokovic told reporters.
"I've lost only two games in the first two matches. It can't be better than this, for sure."
Spaniard Nadal, whose eight-year reign as champion was ended by Djokovic in last year's final, extended his proud record in Monte Carlo to 50-2 with his win on centre court.
"That is going to be a very tough match," the eight-times French Open champion said about the all-Spanish duel.
"David is a tough, tough player on any surface but here on clay, (he is) always a big challenge. I play a lot of matches against him, very tough ones."
Federer will face Jo-Wilfried Tsonga after the French ninth seed shook off a mediocre start to celebrate his 29th birthday with a 5-7 6-3 6-0 victory over Italy's Fabio Fognini.
"I've seen Jo play different kinds of quality matches lately so I'm not quite sure how he's going to play, how aggressive, how passive," Federer said.
"I have to make sure I play aggressive myself and not become too passive just because we're on clay."
Djokovic, seeded second, will face Guillermo Garcia-Lopez after the Spaniard provided the shock of the third round with a 4-6 6-3 6-1 comeback win over fifth seed Tomas Berdych.
Djokovic has taken just 45 and 47 minutes to win his opening two matches in the tournament.
Third seed Stanislas Wawrinka reached the quarter-finals without hitting a ball after his third-round opponent Nicolas Almagro withdrew injured.
"I woke up this morning with a severe pain in my left foot that prevented me from even walking normally," Almagro said.
Australian Open champion Wawrinka advances to meet eighth seed Milos Raonic after the Canadian beat 11th-seeded Spaniard Tommy Robredo 6-4 6-3.
(Writing by Julien Pretot/Sam Holden; Editing by Mitch Phillips, Robert Woodward and Pritha Sarkar)