The 24-year-old missed England's recent humbling 3-0 series loss in India because of a calf injury and had been expected to return to the side but not so high in the batting order.
Phil Salt, who stood in as wicketkeeper in India, loses the gloves but retains his spot in the opening partnership alongside Ben Duckett (30) with Joe Root (34), Harry Brook (25), Jos Buttler (34) and Liam Livingstone (31) shuffling down the order to accommodate Smith.
Brydon Carse (29) also returns after being sidelined by blisters to take his place in a three-pronged pace attack with Jofra Archer (29) and Mark Wood (35).
There is little room for error in the Champions Trophy with England likely to need at least two wins from their Group B matches against Australia, Afghanistan, and South Africa to progress to the semi-finals.
England XI to play Australia: Phil Salt, Ben Duckett, Jamie Smith (wk), Joe Root, Harry Brook, Jos Buttler (captain), Liam Livingstone, Brydon Carse, Jofra Archer, Adil Rashid, Mark Wood