Wallace, who can play in the centre or at fly-half, has earnt his call-up on the back of some impressive displays for Ulster this season.
He is joined in the 22-strong party by Ulster team-mate Bryan Young, the prop who made his Ireland debut on the summer tour to New Zealand and Australia.
Isaac Boss, another Ulsterman, was given the nod ahead of Eoin Reddan to supply back-up top first choice scrum-half Peter Stringer.
Frankie Sheahan, who has recovered from a career-threatening neck injury, continued his comeback with inclusion in the squad to face the Springboks at Lansdowne Road.
All of Ireland's Triple Crown-winning line-up feature in the 22, except for Munster hooker Jerry Flannery who is out until Christmas with a shoulder injury.
O'Sullivan said: "I'm keeping one eye on the World Cup and am considering a bit more depth in the squad, certainly in some positions.
"There are new faces and I would like to use the three games to get more people on the pitch.
"Having said that, I'm not going out with the attitude that it's an experiment - it's not.
"We want to win the three Test matches, but we have more elbow room. The first game against South Africa will tell us a lot about how we are and hopefully we'll have more room for manoeuvring over the course of the three games."
O'Sullivan will name his starting line-up to face South Africa next Tuesday.