Nicholls has impressed in limited overs matches over the New Zealand summer and would likely slot into Taylor's position at number four in the batting line-up, one ahead of captain Brendon McCullum.
The 24-year-old could cement a permanent position at number five in the lineup with a strong performance against the Australians given McCullum will retire at the end of the series.
"Henry has been very impressive the way he's made the step up to international cricket and we're confident of the job he can do for us in the top order," said New Zealand coach Mike Hesson.
The 13-man squad includes just one specialist spinner in Mitchell Santner, who is more of a batting all-rounder, with test wicketkeeper BJ Watling battling a sore back and bracketed with limited overs specialist Luke Ronchi.
Fast bowler Matt Henry has also been rewarded for some strong performances in the limited overs matches he has played, though Tim Southee has returned from injury and is expected to lead the attack.
All-rounder Corey Anderson has also been named after he recovering from a back injury and returning to the bowling crease in the limited overs series.
"Tim's a leader within our group and our most experienced bowler, so we're excited to have him fit and a part of our pace bowling attack," Hesson said.
"Matt also comes back into the squad after some really strong performances throughout the summer.
"It's well documented how good a test side Australia are and we know it will take some exceptional cricket for us to have a chance of taking out the series."
New Zealand: Brendon McCullum (captain), Corey Anderson, Doug Bracewell, Trent Boult, Martin Guptill, Matt Henry, Tom Latham, Henry Nicholls, Mitchell Santner, Tim Southee, Neil Wagner, BJ Watling/Luke Ronchi, Kane Williamson
(Reporting by Greg Stutchbury; Editing by Ian Ransom)
