Sterling has not featured since being substituted at halftime in the second group game, a 2-1 win over Wales, but despite his ineffective displays returns as England look to his trickery to break down what is likely to be a packed defence.
Hodgson has also recalled Wayne Rooney and Dele Alli in midfield, fullbacks Danny Rose and Kyle Walker plus Harry Kane, yet to score in the tournament, who will lead the line with support from the retained Daniel Sturridge.
Iceland, in the knockout stage on their first tournament appearance, go with the same starting XI who beat Austria last time out with coach Lars Lagerback confident they have all recovered from the physically draining performance.
Lagerback has never lost to England, drawing four and winning two as part of the Sweden coaching team.
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The winner of Monday's game will play France in Paris on Sunday.
(Editing by Ken Ferris)
