Watson was expected to be a key player in both the Ashes and tri-series with his batting and pace bowling, but has been plagued by a hamstring problem.
However, a bicep injury to Andrew Symonds has prompted his return, having proved his fitness in domestic cricket.
Paceman Shaun Tait and Stuart Clark have been left out of the 13-man squad, but spinner Brad Hogg is retained.
Chairman of selectors Andrew Hilditch explained: "With Shane returning to the side there is no need to continue with five specialist fast bowlers in the squad.
"He adds a great balance to the Australian side
Hilditch on Watson"
"Both Stuart and Shaun were unlucky to be omitted and remain very much in contention for selection in the World Cup squad."
But Hilditch hinted that Watson could be given an extended run in the Australia side, provided he retains his fitness.
"Shane has been given a full medical clearance and has successfully returned to domestic cricket.
"We feel the time is now right for him to return to international cricket.
"He adds a great balance to the Australian one-day side and was an important member of the victorious Australian side at the Champions Trophy."
The best of three final starts in Melbourne on Friday with the second game in Sydney on Sunday and the third game, if needed, in Adelaide next Tuesday.
Australia squad: R Ponting (captain), A Gilchrist (vice captain), M Hussey, B Hodge, M Hayden, M Clarke, G McGrath, B Lee, N Bracken, B Hogg, M Johnson, S Watson, C White.
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