Head coach Andy Robinson has made sweeping changes, with six players drafted into the side following last weekend's 34-3 thumping in Sydney, while Newcastle back Mathew Tait is switched from centre to wing.
There are call-ups for Tait's Falcons colleague, centre Jamie Noon, Leicester fly-half Andy Goode, Tigers forwards George Chuter and Ben Kay, plus Sale Sharks lock Chris Jones and Wasps flanker Joe Worsley.
Wing Tom Voyce and lock Alex Brown are dropped from the match-day 22 completely, while fly-half Olly Barkley, hooker Lee Mears, lock Louis Deacon and flanker Magnus Lund all find themselves demoted to the bench.
"Our biggest problem last weekend was our lack of accuracy," said Sanderson.
"We have talked about it. There have been no reprimands, but we've been honest with each other about our mistakes.
"No successful team can operate without honesty. There again, we did an awful lot of things well and we are not far off where we want to be.
"We hate losing, and we are hurting at the moment. The beauty of the situation is that we have an opportunity to put it right."
England are striving to avoid a fifth successive defeat against all opponents, which would be their worst results sequence for more than 20 years.
But the odds are against Robinson's men gaining the victory which would see them retain the Cook Cup, as the Wallabies are likely to improve on their rusty display last Sunday.
England team to play Australia in the second Test at Telstra Dome, Melbourne, on Saturday:
I Balshaw (Gloucester); T Varndell (Leicester), J Noon (Newcastle), M Catt (London Irish), M Tait (Newcastle); A Goode (Leicester), P Richards (Gloucester); G Rowntree (Leicester), G Chuter (Leicester), J White (Leicester), C Jones (Sale Sharks), B Kay (Leicester), J Worsley (Wasps), L Moody (Leicester), P Sanderson (Worcester, capt).
Replacements: L Mears (Bath), T Payne (Wasps), L Deacon (Leicester), M Lund (Sale Sharks), N Walshe (Bath), O Barkley (Bath), S Abbott (Harlequins).