Varndell, arguably the most exciting young player in British rugby, will line up on England's right-wing.
He made a try-scoring appearance off the replacements' bench against Samoa at Twickenham last November but now features among a starting line-up that also includes newcomers Peter Richards, Alex Brown and Magnus Lund.
Gloucester wing James Simpson-Daniel was expected to pin down a wing berth alongside Wasps' Tom Voyce but the injury-hit speedster has once again been left cursing his luck.
Simpson-Daniel, whose international career has previously been stalled by a back injury and glandular fever, was admitted to hospital in Sydney after suffering a dead leg during training.
Elsewhere in the team, there are recalls for 35-year-old Leicester prop Graham Rowntree and London Irish centre Mike Catt - five months Rowntree's junior - with Catt partnering gifted Newcastle prospect Mathew Tait in midfield.
There are just three starting XV survivors from England's last Test - the Six Nations Championship defeat against Twickenham visitors Ireland three months ago - in Voyce, hooker Lee Mears and flanker Lewis Moody.
Varndell, a Commonwealth Games silver medallist in Melbourne earlier this year when England were beaten to sevens gold by New Zealand, faces a mouth-watering clash opposite blockbusting Wallabies wing Lote Tuqiri.
He won't be short on confidence, having won the Professional Rugby Players' and English Premiership young player of the season awards.
Like Varndell, Sale Sharks openside flanker Lund has high hopes of making England's World Cup squad in France next year.
Manchester-born Lund, the 6ft 3in son of a Norwegian basketball international, produced an immense display when Sale were crowned Premiership champions by defeating Leicester at Twickenham last month.
He has been named, though, in the number six shirt, with Moody at seven and Wasps World Cup winner Joe Worsley resigned to probably winning his 50th cap from the bench.
Richards, meanwhile, has seen off the challenge of uncapped scrum-half rivals Nick Walshe and Scott Bemand to partner Bath's Olly Barkley.
Catt will enjoy a first England start since the 51-15 defeat against Australia in Brisbane two years ago, while Gloucester lock Brown finally makes a Test breakthrough.
Brown was earmarked for a Test bow against Australia at Twickenham seven months ago, but a neck injury dashed those hopes.
England are seeking only their third victory on Australian soil when they line up at Telstra Stadium this weekend.
England team to play Australia at Telstra Stadium, Sydney.
I Balshaw (Gloucester); T Varndell (Leicester), M Tait (Newcastle), M Catt (London Irish), T Voyce (Wasps); O Barkley (Bath), P Richards (Gloucester); G Rowntree (Leicester), L Mears (Bath), J White (Leicester), L Deacon (Leicester), A Brown (Gloucester), M Lund (Sale Sharks), L Moody (Leicester), P Sanderson (Worcester, capt).
Replacements: G Chuter (Leicester), T Payne (Wasps), C Jones (Sale Sharks), J Worsley (Wasps), N Walshe (Bath), A Goode (Leicester), J Noon (Newcastle).