Marsh has struggled for form since rejoining the Test side following injury.
Melbourne: Shaun Marsh has been dropped from Australia's squad for the first three matches of the tri-nations limited-overs series against India and Sri Lanka.
Marsh, who has struggled for form since rejoining the Test side following injury, makes way for Queensland batsman Peter Forrest, who will make his international debut.
"Shaun Marsh is obviously disappointed with his own form in recent weeks and is out of the side but remains in our thinking for the future while he works at state level - as they say, class is permanent but form can be temporary," chairman of selectors John Inverarity said.
Paceman Ryan Harris was also selected to the 14-man squad, while Matthew Wade replaces the rested Brad Haddin behind the wickets.
Inverarity the squad was a "talented mix of experienced and proven performers, with young players not yet experienced at international level."
"We want a flying start to the Commonwealth Bank Series against India and Sri Lanka and as always, have selected a group we are confident can win while also keeping an eye on development for the future," Inverarity said.
Mitchell Marsh, younger brother of Shaun Marsh, has been selected for the third ODI squad, allowing him to represent Western Australia in the Sheffield Shield.
"Peter Forrest, Mitchell Marsh, Matthew Wade, Dan Christian and Clint McKay are in form and will have a chance to either prove or further prove themselves on the international stage," Inverarity said.
With Brad Haddin rested and Shane Watson still injured, a vice-captain to skipper Michael Clarke is yet to be named for the squad.
"We have not at this stage named a vice-captain for the first three games with Brad resting and Shane Watson still unavailable while he completes his recovery from injury, and will assess that position when the squad assembles."
"Brad Haddin has come off a heavy programme of Test cricket," Inverarity said. "The workload for a wicketkeeper/batsman is rigorous and resting him for the start of the series will refresh him for coming international commitments while also giving us a chance to look at Matt Wade at this level."
The back-in-form veteran duo of Ricky Ponting and Mike Hussey remain in the squad, while the bowling attack will be spearheaded by another veteran, Brett Lee.
"Brett Lee had a terrific Big Bash League and with Ryan Harris provides the squad with the experience at this level that will benefit the broader fast bowling group, while Xavier Doherty's ability in this format speaks for itself," said Inverarity.
The tri-nations series will start on Friday with Australia playing India in Melbourne, through to March 2. A best of three finals series will be played between the top-two teams from March 4-8.
Australia won the preceding Test series against India 4-0.
Forrest will also be available for a Prime Minister's XI warm-up match against Sri Lanka at Canberra on Friday, where he will be vice-captain to Haddin.
Forrest has got the nod for his solid contribution of 154 runs at a strike rate of 125.20 for Brisbane Heat in the Big Bash league.
ODI: Michael Clarke (captain), Dan Christian, Xavier Doherty, Peter Forrest, Ryan Harris, David Hussey, Mike Hussey, Brett Lee, Mitchell Marsh, Clint McKay, Ricky Ponting, Mitchell Starc, Matthew Wade, David Warner.
Prime Minister's XI: Brad Haddin (captain), Peter Forrest, Sean Abbott, Cameron Boyce, Meyrick Buchanan, Nathan Coulter-Nile, Ben Cutting, Michael Neser, Wes Robinson, Dean Solway, Adam Voges, Aaron Ayre (12th man).