Peel, who started all three Tests for the Lions in New Zealand five years ago, has replaced Scarlets scrum-half Martin Roberts in the 34-man party.
The Sale Sharks star had originally been left out by Wales and Lions coach Warren Gatland due to a groin injury.
But the 28-year-old played 80 minutes for his club side at the weekend and is now in line to face France this Friday.
"It was important for us to see Dwayne come through 80 minutes of rugby," said Gatland, after he announced Peel would join Cardiff Blues duo Gareth Cooper and Richie Rees in the current squad.
"But once he proved his fitness it's obvious that a player of his experience and talents would provide a welcome boost to any squad."
2009 Lions Gethin Jenkins, Alun Wyn Jones and Matthew Rees are all out of Friday's game with France through injury, while fellow tourist Andy Powell has been dropped from the squad as a result of a breach of discipline.
Jenkins and Rees may return in time to face Ireland on March 13 but Wyn Jones will definitely miss the remainder of the tournament.
Backs: Gareth Cooper, Leigh Halfpenny, Tom James, Richard Rees, Jamie Roberts, Tom Shanklin (all Cardiff Blues) Dan Biggar, Andrew Bishop, Lee Byrne, James Hook, Kristian Phillips, Tom Prydie, Shane Williams (all Ospreys), Jonathan Davies, Stephen Jones (all Scarlets), Dwayne Peel (Sale Sharks)
Forwards: Ken Owens (Scarlets), Bradley Davies, Gethin Jenkins, Deiniol Jones, Sam Warburton, Gareth Williams, Martyn Williams (all Cardiff Blues), Huw Bennett, Ian Gough, Paul James, Adam Jones, Ryan Jones, Jonathan Thomas (all Ospreys), Matthew Rees (Scarlets), Luke Charteris, Dan Lydiate (both Newport Gwent Dragons), Eifion Lewis-Roberts (Sale Sharks), Rhys Gill (Saracens)
NB. Bold denotes Lion