The 31-year-old former refugee, who received his Australian citizenship after a change in the law last month, has impressed selectors with his performances on the A tour of Zimbabwe and South Africa.
"Fawad Ahmed gets his opportunity as the squad's lead spinner," chief selector John Inverarity said.
"He replaces Xavier Doherty, who had that role in the ICC Champions Trophy played in June.
"While Xavier will be disappointed, he remains in strong contention for selection for the tour of India in October.
"Fawad has been a consistent wicket-taker on the Australia A tour of Zimbabwe and South Africa.
"He is a mature and very good leg-spin bowler and the (selectors are) keen to see how he fares in international competition."
Inverarity said the leg-spinner could play himself into the Test team for the return Ashes series in Australia, which starts at the Gabba in Brisbane on November 21.
"Well, he would be in contention for that, we'll see how he goes," Iverarity added.
"He played in some (Sheffield) Shield matches at the end of the last Australian summer and bowled well and took wickets, so we're just keen to see how he goes at international level.
"He and a number of other spinners will be contention as well."
Middle order batsman Mitchell Marsh, who was in the Australia squad for the Champions Trophy, is replaced by Test batsman Steve Smith but Inverarity stressed that the 21-year-old remained "of high interest" to selectors.
Test captain Michael Clarke, who quit the shortest form of the international game in 2011, will also take charge the one-day side with George Bailey continuing in his role as skipper of the Twenty20 side.
The 18-member squad will be reduced by three players after the Twenty20 matches in Southampton and Durham at the end of August before the one-day series begins in Edinburgh on September 3.
Squad: Michael Clarke, George Bailey, Fawad Ahmed, Nathan Coulter-Nile, James Faulkner, Aaron Finch, Josh Hazlewood, Phil Hughes, Mitchell Johnson, Shaun Marsh, Glenn Maxwell, Clint McKay, Steve Smith, Mitchell Starc, Adam Voges, Matthew Wade, David Warner, Shane Watson.
- Sports & Recreation
- John Inverarity
- Fawad Ahmed
- Xavier Doherty