The former Ireland U19, U21, Universities and A back, who has previously featured for an Ireland side in a non-cap match against the Barbarians, has been chosen on the right wing as Declan Kidney shuffles his back three.
"My heart was beating pretty fast when Declan was calling out the team and thankfully I was on the teamsheet, so I'm over the moon," said McFadden.
"I was originally with the Wolfhounds last week and I was due to play in that match over in Scotland and then when I heard Shane (Horgan) had a problem with his knee and obviously Andrew (Trimble) had a broken hand and Tommy (Bowe) didn't come through his scan, I suppose there was an opening there, but there's still a lot of good players left.
"I am sure I'll be nervous coming up to the game, but I am nervous before every game. I am always nervous that I'm going to go out there and not perform to my best. But I think that is the way you have to go out for every game. It's going to be the same this Saturday, it's going to be a big test."
Injuries to first and second-choice full backs Kearney and Murphy see fellow Lion Luke Fitzgerald make his first start in the No15 shirt, with Munster's Keith Earls, another 2009 Lion, named on the left wing.
McFadden's Leinster team-mate Mike Ross is set for his first Ireland start after being chosen alongside Cian Healy and Rory Best in the front row.
Tomas O'Leary wins the battle for the No9 shirt ahead of Eoin Reddan and Peter Stringer despite being left out of Kidney's original Six Nations squad.
With Stephen Ferris and Jamie Heaslip both out injured, Denis Leamy will start on the blindside flank, with Sean O'Brien at No8.
Ireland are also missing Jerry Flannery but Lions skipper Paul O'Connell will make his first international appearance since the final game of last year's Six Nations.
Ireland (vs Italy, Saturday, Rome, 2.30pm GMT)
15 L Fitzgerald (Leinster)
14 F McFadden (Leinster)
13 B O'Driscoll (Leinster, captain)
12 G D'Arcy (Leinster)
11 K Earls (Munster)
10 J Sexton (Leinster)
9 T O'Leary (Munster)
1 C Healy (Leinster)
2 R Best (Ulster)
3 M Ross (Leinster)
4 D O'Callaghan (Munster)
5 P O'Connell (Munster)
6 D Leamy (Munster)
7 D Wallace (Munster)
8 S O'Brien (Leinster)
16 S Cronin (Connacht)
17 T Court (Ulster)
18 L Cullen (Leinster)
19 S Jennings (Leinster)
20 E Reddan (Leinster)
21 R O'Gara (Munster)
22 P Wallace (Ulster)
NB. Bold denotes Lion