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.
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.