Marsh was joined in the squad, for the first and second international T20 clashes with Sri Lanka, by his WA teammate and captain Adam Voges.
Big-hitting Melbourne Renegades captain Aaron Finch has also been rewarded for his outstanding Big Bash form with his inclusion in the squad.
Finch was named player of the BBL tournament after whacking 309 runs in seven matches for the dominant Renegades.
The Australian team for the matches in Sydney on Saturday and Melbourne on January 28 will be captained by George Bailey.
Australia squad for 1st two T20 matches:
George Bailey (C)
Ben Cutting
Xavier Doherty
James Faulkner
Aaron Finch
Ben Laughlin
Shaun Marsh
Glenn Maxwell
Mitchell Starc
Adam Voges
Matthew Wade
David Warner
The T20 side retains only seven of Australia's last squad for fifty-over one-day international against Sri Lanka.
The side excludes Australia captain Michael Clarke, who has retired from the shortest form of the game, as well as David Hussey, Moises Henriques, Phil Hughes, Mitchell Johnson and Clint McKay, all of whom will face the tourists in Hobart for the final one-day international match on Wednesday.
Melbourne Stars all-rounder James Faulkner was named, as well as Hobart Hurricanes quick Ben Laughlin.
Laughlin and Faulkner have both played just one other T20 match for Australia, with Faulkner making his debut against India in Sydney last February while Laughlin played against South Africa at Centurion in 2009.
Marsh, 29, completed a remarkable form turnaround with WA-based Big Bash League franchise Perth Scorchers this summer, after reaching a crossroads in a horror 2012.
The former Test number three was dismissed back to the state lower grades for misconduct while on tour in South Africa with his Scorchers teammates at the Champions League tournament last year.
But, after fighting his way back to play under new coach and WA great Justin Langer, Marsh found his touch for the Scorchers, including belting a match-winning 85 from 52 balls to drive Perth into the BBL final over the Renegades last week.
Australian chairman of selectors John Inverarity said he hoped Marsh's selection in the 12-man squad was a stepping-stone for the longer forms of the game.
"With Shaun, we'll just take one step at a time, his form in the Big Bash League has been absolutely compelling," Inverarity said on Monday.
"He's batted brilliantly and we all know how well he can play when he's in a good space and he seems to be in a good space at the moment.
"He was towards the top of our list and he made more runs than anybody in the Big Bash League and he played brilliantly on many occasions, as did Aaron Finch.
"We've kept a very close eye on Shaun and he's in a very good place at the moment.
"And we hope that this is a stepping stone for other forms, we don't know."
Another Big Bash comeback kid Luke Pomersbach narrowly missed out on a call-up, according to Inverarity, after a stunning season with the Brisbane Heat.
Inverarity said Pomersbach, who was dumped by WA Cricket after constant alcohol and drug-fuelled incidents, needed to play more consistent solid cricket at domestic level.
"I wouldn't say with past indiscretions, but probably say play well over a longer period," Inverarity said.
"The batting positions were pretty tight and Ben Rohrer and Luke Pomersbach both received very strong consideration, but we just went the way we did.
"Adam Voges' form, as you would have seen, has been stunning in the way that he's finished games and he's got a very good sustained all-round record.
"And we hope that Luke Pomersbach can really build on what he's done recently."
Scorchers spinner Brad Hogg missed out on selection, with Inverarity indicating the 41-year-old was unlikely to be given another chance at international level.