Watson, whose wife gave birth last week, made clear he felt the punishment was overly harsh and said he would be considering his future, but has decided to battle on.
"Shane Watson will return to the tour of India and will fly out of Sydney tonight to join the Australian squad in India ahead of the fourth Test," Cricket Australia said in a brief statement.
His dumping fuelled rumours of a rift with skipper Michael Clarke, which was intensified by Cricket Australia general manager Pat Howard saying Watson was only "sometimes" a team player.
Watson, who has known Clarke for 20 years, insisted their relationship was "going really well".
If he had decided to quit, Clarke would have been desperately short of experience ahead of an Ashes double header against England starting in July, after the recent retirement of Ricky Ponting and Mike Hussey.