Shaun Marsh and Alex Doolan will battle it out for a spot in Australia's Test team after Bailey was dropped for next month's three-Test tour of South Africa.
Bailey was made to pay for a poor Ashes series in which he averaged just 26.14 with the bat despite Australia's overall dominance.
The 31-year-old is a proven performer in 50-over cricket, but he has not been able to find his groove in the longer form of the game.
His axing has opened the door for either Marsh to resurrect his Test career, or for 28-year-old Tasmanian Doolan to make his debut.
National selector John Inverarity said opener Phil Hughes was close to making the 15-man squad, but was pipped by Marsh and Doolan.
Marsh hasn't played a Test since his disastrous series against India two years ago, when he averaged just 2.83 across six innings.
But with the help of Western Australia coach Justin Langer, Marsh regained his mojo last summer, with the 30-year-old scoring 71no and 55 in his past two outings for Australia's ODI side.
"He just seems to be in a very good space in himself mentally at the moment," Inverarity said.
Inverarity said it was a hard decision to leave out Bailey, who faces a major fight to resurrect his Test career.
"I think George's contribution to the Ashes victory was very significant," Inverarity said.
"He played an integral role there. It was a wonderful Ashes series and the 11 players knitted together really well and they were a very convincing unit.
"But going to South Africa, we think that George is less suited there against their attack and we've left him out and bolstered the batting with Alex Doolan and Shaun Marsh."
Doolan was on standby for the fifth Ashes Test in Sydney, and Inverarity has been impressed by the talented right-hander.
"He's been on the radar for quite some time," Inverarity said.
"He looks a very good player - good technique and plays pace bowling well.
"So we're hoping that he will really flourish in this environment."
Fit-again pacemen James Pattinson and Jackson Bird earned recalls, but there was no room for WA's Nathan Coulter-Nile.
Although Pattinson was a Test regular before his injury, he is unlikely to play in the first Test unless one of Michell Johnson, Peter Siddle or Ryan Harris breaks down with injury.
All-rounder James Faulkner was also included in the squad.
Australia Test squad for South Africa: Michael Clarke (capt), Brad Haddin (vc), Jackson Bird, Alex Doolan, James Faulkner, Ryan Harris, Mitchell Johnson, Shaun Marsh, Nathan Lyon, James Pattinson, Chris Rogers, Peter Siddle, Steve Smith, David Warner, Shane Watson.