Farrell will start opposite fellow world player of the year nominee Dan Carter.
Farrell has reclaimed the England number 10 jersey for the first time in six Tests after Toby Flood was sidelined by a toe injury he suffered in last weekend's 16-15 defeat to South Africa.
England will otherwise start with an unchanged team, although Northampton lock Courtney Lawes and the uncapped Gloucester fly-half Freddie Burns come onto the bench.
Farrell and Carter are two of the four men on the shortlist for the International Rugby Board's prestigious award, along with All Blacks captain Richie McCaw and France fly-half Frederic Michalak.
New Zealand also named their team this morning and Carter will start at Twickenham after recovering from an Achilles injury, as the All Blacks aim to extend a 20-Test unbeaten run.
England head into their final game of the QBE autumn series on the back of frustrating defeats to Australia (20-14) and South Africa.
Head coach Stuart Lancaster said: "We asked for a big response from the players after Australia and we got one last Saturday against South Africa, although ultimately we were denied.
"That frustration has been channelled this week and the whole squad has reacted with a determination to get a victory against the top team in the world."
Flood was England's most experienced player, the only member of the squad with over 50 caps.
England's starting XV on Saturday will boast a combined total of just 206 caps compared to New Zealand's 788.
Farrell started all five of England's RBS 6 Nations matches this year, switching from inside centre to fly-half for the defeat to Wales and the victories over France in Paris and Ireland at Twickenham.
The 21-year-old was dropped after England's first Test defeat to South Africa on the summer tour and he assumed the role of Flood's understudy for the last five Test matches.
Farrell even has to share the fly-half duties for Saracens with Charlie Hodgson - but England insist his selection against the All Blacks would not be a gamble.
Lancaster was impressed by Farrell's temperament when he stepped into the Test arena during the Six Nations and he made a key contribution off the bench when England drew 14-14 with the Springboks in June.
Last weekend, Farrell replaced Flood early in the second half and he pulled the strings as England almost mounted a successful comeback from 16-6 down.
"I suppose it is a big ask for any 10 to play against the best in the world," said Farrell's father Andy, the England assistant coach.
"It is not a gamble. He is comfortable in the environment. The lads are comfortable with him being there. He is in a good place."
Lawes returns to the England matchday squad in place of Mouritz Botha after recovering from a knee injury he suffered in his last game for Northampton before the autumn series.
The Saints lock has endured an injury-hit 2012, with a shin problem limiting him to just one bench appearance in the Six Nations and ruling him out of England's summer tour.
Burns, who comes into the squad for Flood, has been in prime form for Gloucester this season and is the leading points-scorer in the Aviva Premiership.
"We are delighted that Courtney has got an opportunity," Lancaster said.
"He has worked hard to get back in contention and what better game for him to make an impact?
"The same with Freddie Burns, who has had a great Premiership season so far, and we are looking forward to seeing him contribute should he get his chance."
England team to play New Zealand in the QBE autumn international at Twickenham on Saturday, December 1 (kick-off 2.30pm):
A Goode (Saracens); C Ashton (Saracens), M Tuilagi (Leicester), B Barritt (Saracens), M Brown (Harlequins); O Farrell (Saracens), B Youngs (Leicester); A Corbisiero (London Irish), T Youngs (Leicester), D Cole (Leicester), J Launchbury (Wasps), G Parling (Leicester), T Wood (Northampton), C Robshaw (Harlequins, capt), B Morgan (Gloucester).
Replacements: D Paice (London Irish), D Wilson (Bath), M Vunipola (Saracens), C Lawes (Northampton), J Haskell (Wasps), D Care (Harlequins), F Burns (Gloucester), J Joseph (London Irish).
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