Apart from Karthik, all-rounder Irfan Pathan and pacers Umesh Yadav and Vinay Kumar also made a comeback to the side, announced BCCI secretary Sanjay Jagdale after a meeting of the selection committee here.
The selection committee, headed by former cricketer Sandeep Patil, however, surprisingly picked Murali Vijay in the team ahead of the left-handed Gambhir. Vijay has not been in the best of form and has been dropped from even his T20 League franchise, the Chennai Super Kings.
Paceman Ashok Dinda, who has been getting a lot of stick in the T20 League, and batsman Ajinkya Rahane were also left out of the squad, which has Mahendra Singh Dhoni as captain for the event starting June 6.
Leg-spinner Amit Mishra, performing well in the T20 League, was also included in the team to complement Ravindra Jadeja and R Ashwin - the two other specialist tweakers in the side.
Shikhar Dhawan, who made his Test debut with a breathtaking 187 against Australia recently, expectedly got the selectors' nod as the number one opener.
The national selectors sprung a surprise by sacking Gambhir, whose form has been patchy of late. He has scored 320 runs in 11 games in the ongoing T20 League, including three half-centuries.
Gambhir has, however, been named in the probables' list for the tri-series in the West Indies, which will follow the Champions Trophy. In that list, six players - Manoj Tiwary, Praveen Kumar, Mohammed Shami, Ambati Rayudu, Rahul Sharma and Gambhir - were added to the 15 named for the Champions Trophy.
Gambhir's omission did come as a surprise, particularly after his long-time partner Virender Sehwag was not even included in the 30-member probables list.
Clearly, the selectors are looking to blood in young openers keeping in view the 2015 World Cup in Australia and New Zealand.
Yuvraj's ouster was not entirely unexpected considering that the left-hander has not been in the best of form in the ongoing T20 League.
Yuvraj has been without a half-century in his eight T20 matches matches for Pune Warriors, managing just 156 runs at an average of 22.28 with the best being 34.
Considering the seam-friendly conditions in England, the selectors have opted for five pace bowlers with Ishant Sharma spearheading the attack.
The squad has five specialist batsmen in Virat Kohli, Suresh Raina, Rohit Sharma, Vijay and Dhawan, while Dhoni and Karthik are the two wicketkeeper-batsmen.
In Gambhir's absence, Dhawan and Vijay are likely to be the opening combination though Karthik could also be an option since there are just two specialist openers in the squad.
India and South Africa are scheduled to kick off the contest on June 6 at the Sophia Gardens at Cardiff, Wales in a Group B match.
India will then take on the West Indies at the Kennington Oval in London on June 11 before concluding the four-team group engagement on June 15 against arch-rivals Pakistan at Edgbaston, Birmingham.
Australia, New Zealand, South Africa and Sri Lanka form Group A.
The top two teams from each group will progress to the semi-finals scheduled on June 19 and 20 at the Kennington Oval and Sophia Gardens respectively with the winners advancing to the June 23 final to be played at Edgbaston.
This will be the first international engagement for the Indian team after the conclusion of the four-Test series against Australia on March 24.
Team: Mahendra Singh Dhoni (captain), Shikhar Dhawan, Virat Kohli, Suresh Raina, Dinesh Karthik, Murali Vijay, Rohit Sharma, Ravindra Jadeja, R Ashwin, Irfan Patan, Umesh Yadav, Bhuvneshwar Kumar, Ishant Sharma, Amit Mishra, Vinay Kumar.