The Saracens playmaker has been dropped to the bench by Lancaster for the clash at Johannesburg's Coca-Cola Park with Leicester's Toby Flood restored at fly-half.
Despite kicking four penalties, Farrell had an indifferent game in the first Test loss in Durban and Lancaster has decided a change is necessary to bring England back into the three-match series.
Lancaster said: "Owen misses out and moves to the bench, but I am sure he will make a big impact on the game as it goes on.
"He has started in every one of the seven games I have been in charge and he has got a fantastic future ahead of him.
"He was disappointed when he heard the news but his training has been outstanding. I am really pleased with the reaction.
"I am sure he will play a big part in the game and in the future as well."
Flood will be England's most experienced player on the field as he wins his 49th cap but he is yet to make his mark in Lancaster's new-look side due to injury.
A knee problem ruined his chances of playing in the RBS 6 Nations earlier this year before groin and ankle problems ended his domestic season prematurely.
He was used as a second-half substitute last weekend in place of injured centre Brad Barritt but Lancaster feels it is now time to pair him with Tigers team-mate Ben Youngs in the halves.
Lancaster said: "He is a very experienced player for us coming into this game.
"He is one of our most-capped internationals and he has waited patiently for his opportunity.
"Now is the time to give him that chance. Obviously he has got partnered with Ben at nine and Manu Tuilagi at 12.
"That Leicester triumvirate should hopefully serve us well in the game."
Lancaster's selection is a bold one with Tuilagi taking Barritt's place at inside centre and London Irish youngster Jonathan Joseph coming in for his first start as the number 13.
Elsewhere in the backline, Ben Foden reverts to full-back in place of the injured Mike Brown with David Strettle returning on the left wing.
Joseph, 21, is regarded as a top prospect and after making a brief appearance in the final two minutes last week is now given the chance to start.
Lancaster said: "He is a young player, an exciting player.
"He's got good feet, good distribution and he has got that temperament I think players need to play at this level.
"It is a big step for him but every step he has taken so far he has taken in his stride and I am looking forward to seeing how he goes."
Joseph himself is relishing the prospect of his full debut.
The Derby-born player said: "It's a big ask but I'm really excited about it and looking forward to the opportunity to get out there.
"It's a massive game but it's a game of rugby - I've just got to back my ability and hopefully it will go well."
Lancaster, who has named an unchanged pack, played down suggestions that he set out to be adventurous in his selection in an attempt to level the series.
England defended well last week but lacked a creative spark in attack.
Lancaster said: "Every game we go into we go into with a mindset to win.
"The selection is done on a weekly basis, we don't try to work too far in advance.
"Things tend to happen and you make your decisions on the back of previous games and injury reports, and all sorts of different factors.
"We have picked the best side we feel will win this game and then we will review that.
"There is different emphasis in terms of the personnel we have picked but we want to play in the right areas of the field first and foremost. When it is on to play, we want to play."
The task facing England this weekend is a daunting one heading to one of South Africa's most famous and formidable arenas - scene of the 1995 World Cup final victory - and with the location at altitude.
In terms of the climate, Lancaster hopes his team will take pointers from the second string's midweek win over a Southern Barbarians team in Kimberley.
He said: "It does have a bearing but we have got to be careful not to make too much of it.
"Certainly the game yesterday was a great indicator to us as to the type of conditions we are going to be facing on Saturday."
South Africa: P Lambie; J P Pietersen, J de Villiers (capt), F Steyn, B Habana; M Steyn, F Hougaard; T Mtawarira, B du Plessis, J du Plessis, E Etzebeth, J Kruger, M Coetzee, W Alberts, P Spies.
Replacements: A Strauss, W Kruger, F van der Merwe, K Daniel, R Pienaar, W Olivier, B Basson.
England: B Foden (Northampton); C Ashton (Northampton, J Joseph (London Irish), M Tuilagi (Leicester), D Strettle (Saracens); T Flood (Leicester), B Youngs (Leicester); J Marler (Harleuins), D Hartley (Northampton), D Cole (Leicester), M Botha (Saracens), G Parling (Leicester), T Johnson (Exeter), C Robshaw (Harlequins, capt), B Morgan (Scarlets).
Replacements: L Mears (Bath), A Corbisiero (London Irish), T Palmer (Stade Francais), P Dowson (Northampton), L Dickson (Northampton), O Farrell (Saracens), A Goode (Saracens).
Referee: Alain Rolland (Ireland).
Assistant referees: Steve Walsh (Australia) and Simon McDowell (Ireland).
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