The eight-nation tournament starts in England next month with Bailey getting the nod as Michael Clarke's number two in place of Shane Watson.
Watson is in the 15-man squad but opted to stand aside as vice skipper to focus on his batting and bowling, in the same way he did with the Test side for the upcoming Ashes tour of England.
"Selectors have been impressed with George's leadership when he stepped in to guide the ODI team in Michael's absence last summer and leadership of the T20 team over the past two seasons," national selector John Inverarity said.
"Given George's experience and credentials, he was viewed as the ideal person for the role."
There were few surprises in the squad with Inverarity previously announcing that players chosen to represent Australia A in their England tour that will run at the same time as the Champions Trophy would not be considered.
This ruled out Brad Haddin, Steve Smith, Moises Henriques, Usman Khawaja, James Pattinson and Jackson Bird.
But several of the Ashes squad are on the team, including Clarke, Watson, David Warner, Phil Hughes, Matt Wade, Mitchell Starc and James Faulkner.
Paceman Mitchell Johnson was also selected and will have a point to prove after being left out of the Ashes reckoning.
West Australian fast bowler Nathan Coulter-Nile also made the grade and will be in contention for his ODI debut in the tournament.
"Nathan Coulter-Nile is an emerging cricketer as a fast-medium bowler and explosive lower-order batsman," said Inverarity.
"He is also one of the finest fieldsmen in Australian cricket and the energy he brings to his game is impressive.
"While Nathan has played a T20 international for Australia, we are looking forward to seeing him take his very good domestic limited overs form onto the world stage."
Australia won the Champions Trophy in India in 2006 and South Africa in 2009 and start this year's campaign against England on June 8, with group fixtures against New Zealand and Sri Lanka to follow before the semi-finals.
"As the two-time defending champion, the squad has been selected with the aim of winning the tournament, while also keeping the 2015 ICC World Cup firmly in mind," said Inverarity.
SQUAD: Michael Clarke (capt), George Bailey (vice-capt), David Warner, Shane Watson, Phil Hughes, Adam Voges, Mitchell Marsh, Matthew Wade, Glenn Maxwell, James Faulkner, Mitchell Johnson, Mitchell Starc, Clint McKay, Nathan Coulter-Nile, Xavier Doherty.