Pace spearhead Shami and batsman Rohit Sharma are the only two changes from the team that played England in a three-match one-day series in India this year.
Shami takes the place of leg-spinner Amit Mishra while Sharma replaces Lokesh Rahul, who is recuperating from shoulder surgery last month.
"It is a balanced team, an experienced team and I think we have picked the best possible side," chief selector MSK Prasad told reporters.
India's participation in the 50-over tournament, to be played in England and Wales from June 1, had been in doubt after its powerful cricket board fought the International Cricket Council (ICC) over revenue-sharing.
The Board of Control for Cricket in India (BCCI) missed the April 25 deadline to announce a squad and threatened a boycott over the dispute.
But the BCCI, the world's wealthiest cricket board, held a special general meeting on Sunday where members unanimously decided to take part in the Champions Trophy.
The BCCI is furious over the ICC's decision last month to amend rules so that less money and power is held by cricket's major powers: India, England and Australia.
The BCCI stands to lose $277 million in revenue over the next eight years under the sweeping changes.
