MacDonald, who only returned to New Zealand rugby this year after a stint in Japan, replaces Mils Muliaina, who will be on the bench.
"Leon's play for the New Zealand Maori was exceptional," All Blacks coach Graham Henry said.
"His form is such that he's forced his way into the line-up ahead of Mils Muliaina who was the player of the tour at the end of last year."
Henry has also opted to stick with the Aaron Mauger-Tana Umaga partnership that started against Fiji in the midfield.
This means that Umaga's Wellington team-mate Conrad Smith, who had an excellent Super 12 season with the Hurricanes, misses out altogether with Muliaina able to cover centre as well as full-back.
Winger Rico Gear, the form wing of the Super 12, also only makes the bench with Doug Howlett's experience earning him selection with the impressive Sitiveni Sivivatu on the other flank.
Justin Marshall also got the nod over rival Byron Kelleher, who started in the 91-0 romp over Fiji and impressed on the All Blacks tour to Europe at the end of last year.
Henry admitted there had been a few tough calls to make.
"There are number of players who have been pretty unlucky really - Conrad Smith, Rico Gear, Byron Kelleher, Jono Gibbes and Greg Somerville, for example," he added. "They are playing good football, but we can only start 15.
"As far as personnel are concerned, this is one of the strongest sides the All Blacks could play."
Hooker Anton Oliver and flanker Mose Tuiali'i were not considered for selection due to injury.
New Zealand team to face the Lions in Christchurch on Saturday:
Leon MacDonald, Doug Howlett, Tana Umaga (captain), Aaron Mauger, Sitiveni Sivivatu; Dan Carter, Justin Marshall; Tony Woodcock, Keven Mealamu, Carl Hayman, Chris Jack, Ali Williams, Jerry Collins, Richie McCaw, Rodney So'oialo.
Reserves: Derren Witcombe, Greg Somerville, Jono Gibbes, Sione Lauaki, Byron Kelleher, Mils Muliaina, Rico Gear.