Wallaby Coach John Connolly said: "Phil has been a tremendous player for Australian rugby. He's one of those players who wears their heart on their sleave and he thoroughly deserves his chance to captain his country."
However, there was no room for Waugh's close rival George Smith in the matchday squad as Connolly announced an experimental side for the opening Test of their European Tour.
Makeshift scrum-half Matt Giteau and Matt Rogers form a new half back partnership inside Stephen Larkham who has been switched to a midfield role at inside centre alongside Lote Tuqiri who returns from a five game suspension. Cameron Shepherd has got the nod to start on the wing ahead of Mark Gerrard and Scott Staniforth following his eleven in the midweek defeat to the Ospreys.
Connolly said: "We have full confidence in the players we have selected, though this tour is about looking at different options. We don't want to sell anyone short but we understand that there is a very important year coming up ahead of the Rugby World Cup and we want to have a better idea about this squad.
"We need to see if Matt (Giteau) can play scrum half, can Stephen (Larkham) play at No. 12, and a number of issues among the forwards. That's why George (Smith) is not in the twenty-two man squad. However, the goal is always to win and we will be aiming to do that on Saturday."
International newcomers Tai McIsaac, Rodney Blake and Wycliff Palu all retain their places in the Wallaby side though veteran locks Nathan Sharpe and Dan Vickerman form an experienced second row in the scrum against an established Welsh team.
Connolly said: "It has been a while since Wales were at full strength but now that they are we are expecting a very tough contest. They have proved themselves a handful for many sides over recent years and Saturday will be no different with their main men back."
There was encouraging news for the tour party after forward Hugh McMeniman was cleared of any serious injury after being stretchered off the field in the opening minutes of Australia A's loss to the Opsreys in midweek. The 23 year old, who had spent most of 2006 on the sidelines due to a shoulder reconstruction, spent the night in hospital after landing heavily at a lineout. A decision has yet to be taken on his future involvement in the tour.
Wales: K Morgan (Newport Gwent Dragons); G Thomas (Toulouse), T Shanklin (Cardiff Blues), G Henson (Ospreys), S Williams (Ospreys); S Jones (Llanelli Scarlets), D Peel (Llanelli Scarlets); G Jenkins (Cardiff Blues), M Rees (Llanelli Scarlets), A Jones (Ospreys), I Evans (Ospreys), I Gough (Newport Gwent Dragons), J Thomas (Ospreys), M Williams (Cardiff Blues), R Jones (Ospreys).
Replacements: R Thomas (Cardiff Blues), D Jones (Ospreys), G Thomas (Llanelli Scarlets), A Wyn Jones (Ospreys), M Phillips (Cardiff Blues), J Hook (Ospreys), M Jones (Llanelli Scarlets).
Australia: C Latham (Queensland Reds); C Rathbone (ACT Brumbies), L Tuqiri (NSW Waratahs), S Larkham (ACT Brumbies), C Shepherd (Western Force); M Rogers (NSW Waratahs), M Giteau (Western Force); A Baxter (NSW Waratahs), T McIsaac (Western Force), R Blake (Queensland Reds), N Sharpe (Western Force), D Vickerman (NSW Waratahs), R Elsom (NSW Waratahs), P Waugh (NSW Waratahs, captain), W Palu (NSW Waratahs).
Replacements: B Cannon (Western Force), B Robinson (NSW Waratahs), M Chisholm (ACT Brumbies), S Hoiles (ACT Brumbies), J Valentine (Queensland Reds), M Gerrard (ACT Brumbies), A Ashley-Cooper (ACT Brumbies).