Labuschagne, who played his only two tests in the 1-0 series defeat to Pakistan in the United Arab Emirates in October, offers another slow bowling option with his legspin at the Sydney Cricket Ground, traditionally Australia's most spin-friendly wicket.
Tim Paine's side need to win in Sydney to avoid becoming the first Australian team to lose a test series at home to India.
With Labuschagne drafted into the squad, seam-bowling all-rounder Mitchell Marsh may be looking over his shoulder.
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Recalled after being omitted from the first two tests in Adelaide and Perth, Marsh made nine and 10 with the bat and failed to take a wicket bowling 26 overs in the first innings.
Australia's openers, Aaron Finch and Marcus Harris, are also under pressure after failing in both innings in Melbourne.
Australia squad: Tim Paine (capt), Josh Hazlewood, Mitchell Marsh, Pat Cummins, Aaron Finch, Peter Handscomb, Marcus Harris, Marnus Labuschagne, Travis Head, Usman Khawaja, Nathan Lyon, Shaun Marsh, Peter Siddle, Mitchell Starc
(Reporting by Ian Ransom; Editing by Peter Rutherford)
