Disgraced Matera reinstated as Argentina skipper
O'Connor is back from a knee injury, which he suffered in the second Bledisloe Cup Test against New Zealand in October.
He will start at fly-half in Sydney, with Reece Hodge moving to full-back.
O'Connor is one of two changes to the starting side, with Allan Alaalatoa also coming in for Taniela Tupou.
"It's great to have James back in the team this weekend, he brings a lot of experience to a young group and has been working really hard to get his body right to be able to get back on the field," Wallabies head coach Dave Rennie said.
"Reece has done a great job for us at number 10 over the past two games and we're confident he'll put in another good performance for us on Saturday night from full-back.
"The side has worked really hard over the last 10 weeks or so and built a strong connection and I know as a full squad we are really keen to put together a performance that reflects that."
The All Blacks have effectively won the Tri Nations, topping the table by five points ahead of Australia and Argentina ahead of the final game of the tournament.
The Wallabies have lost only one of their past 10 Tests against the Pumas, although they are out to avoid back-to-back winless games against Argentina for the first time since 1987 after the nations drew last month.
A much-changed Pumas outfit are coming off a 38-0 loss to New Zealand and a week of controversy during which captain Pablo Matera was stripped of the captaincy and suspended over "discriminatory and xenophobic" social media posts between 2011 and 2013.
Guido Petti and Santiago Socino were also stood down from international duty.
It was reported on Thursday that Matera would be restored to the captaincy by Argentina.
Australia: Reece Hodge, Tom Wright, Jordan Petaia, Hunter Paisami, Marika Koroibete, James O'Connor, Nic White; Scott Sio, Brandon Paenga-Amosa, Allan Alaalatoa, Rob Simmons, Matt Philip, Ned Hanigan, Michael Hooper, Harry Wilson.
Replacements: Folau Fainga'a, Angus Bell, Taniela Tupou, Lukhan Salakaia-Loto, Rob Valetini, Jake Gordon, Irae Simone, Tom Banks.
Argentina: Santiago Carreras, Bautista Delguy, Matias Orlando, Jeronimo De la Fuente, Emiliano Boffelli, Nicolas Sanchez, Felipe Ezcurra; Nahuel Tetaz Chaparro, Julian Montoya, Francisco Gomez Kodela, Matias Alemanno, Marcos Kremer, Santiago Grondona, Facundo Isa, Rodrigo Bruni.
Replacements: Jose Luis Gonzalez, Mayco Vivas, Juan Pablo Zeiss, Lucas Paulos, Francisco Gorrissen, Gonzalo Bertranou, Domingo Miotti, Santiago Chocobares.
