Coach Andy Robinson has responded to England's hammering by Australia in the first Test by making six changes for Saturday's second game in Melbourne.
Kay's last cap came against Scotland in the 2005 Six Nations
Jamie Noon and Leicester fly-half Andy Goode are brought into the backline, while Noon's fellow Newcastle centre Mathew Tait is moved to the wing.
Hooker George Chuter makes his first start in an all-Leicester front row, while Tigers lock Ben Kay returns.
Sale lock Chris Jones and Wasps flanker Joe Worsley are the others to come in.
Wing Tom Voyce and lock Alex Brown are dropped altogether, while fly-half Olly Barkley, hooker Lee Mears, lock Louis Deacon and flanker Magnus Lund drop to the bench.
Voyce pays the price for a poor defensive performance in Sydney, while Brown could make little impact opposite Wallabies locks Nathan Sharpe and Dan Vickerman.
Tait's appearance on the wing, where he has played regularly for Newcastle, allows Falcons team-mate Noon a chance to return to the position he occupied throughout the Six Nations.
Mike Catt, 34, will partner Noon at centre and earn his 67th cap, taking him past Neil Back on England's all-time list, as the tourists look to avoid a fifth successive defeat - which would be their worst sequence for 22 years.
"We hate losing, and we are hurting at the moment," said captain Pat Sanderson. "The beauty of the situation is that we have an opportunity to put it right."
It will be World Cup winner Kay's first England start since the 2005 Six Nations against Scotland, while Worsley was surprised about being left out in Sydney.
"I do get angry, but I never hold any grudges with the coaches - they go with how they feel," he said.
"You can't be bad about it, you have got to carry on. You can't be negative in a team environment, and I've been helping Magnus and the others.
"I never expect to be picked. Being dropped was the first disappointment, but it is the defeat which tops that.
"Like any sportsman, you need a kick up the backside, and it hurts not being picked. I keep the anger for future games, and it shows to myself that I still want it."
England: I Balshaw (Gloucester); T Varndell (Leicester), J Noon (Newcastle), M Catt (London Irish), M Tait (Newcastle); A Goode (Leicester), P Richards (Gloucester); G Rowntree (Leicester), G Chuter (Leicester), J White (Leicester), C Jones (Sale Sharks), B Kay (Leicester), J Worsley (Wasps), L Moody (Leicester), P Sanderson (Worcester, capt).
Replacements: L Mears (Bath), T Payne (Wasps), L Deacon (Leicester), M Lund (Sale Sharks), N Walshe (Bath), O Barkley (Bath), S Abbott (Harlequins).