The 30-year-old, who fought back after being diagnosed with a rare germ cell cancer last year, forced his way back into the squad after commendable performances in the domestic circuit.
Harbhajan also got the nod from the new selection panel headed by former Test cricketer Sandeep Patil more than a year after his last appearance in a five-day game.
There were no major surprises by the selectors, who dropped Suresh Raina to accommodate Yuvraj while Harbhajan made his way at the expense of injured leg-spinner Piyush Chawla.
Sachin Tendulkar, the seniormost member of the squad, will provide solidity in an otherwise inexperienced middle-order line-up which will also have the in form Virat Kohli. Cheteshwar Pujara and Yuvraj will be the others in the middle order.
Tamil Nadu opener Murali Vijay was also named in the squad as a reserve opener though the selectors retained the experienced duo of Virender Sehwag and Gautam Gambhir despite both of them going through a form slump for a long time.
Vijay replaced S Badrinath, who featured in the last Test against New Zealand in August.
Pace spearhead Zaheer Khan, whose fitness was under the scanner after he limped off the field during a Ranji Trophy match yesterday, has also been retained apparently after getting the physio's nod. Umesh Yadav and Ishant Sharma are the two other pacers in the squad.
The team has seven specialist batsmen, three pacers, three spinners and one wicketkeeper batsman in skipper Mahendra Singh Dhoni.
The series starts in Ahmedabad from November 15, followed by the second Test in Mumbai (from November 23 to 27). The third Test is scheduled in Kolkata (December 5 to 9) and the final match will be played in Nagpur from December 13 to 17.
It is an emotional comeback for Yuvraj, who made his international return during the World Twenty20 Championships in Sri Lanka in September.
The all-rounder then went on to impress one and all with his fine performance in the Duleep Trophy for North Zone.
His 208 against Central Zone was followed by a 59 and a five-for against England for India A at the Brabourne Stadium last week, proving that he was fit for the rigours of five-day cricket.
Harbhajan, on the other, went wicketless in his 21 overs for Punjab against Hyderabad in Mohali but did reasonably well during a county stint for Surrey before this.
The presence of Vijay in the squad puts pressure on Sehwag and Gambhir to perform since Ajinkya Rahane is already in the side and can perform the role of an opener.
In the spin department, the selectors have opted for two off-spinners in R Ashwin and Harbhajan, while left-arm spinner Pragyan Ojha adds variety in the absence of any leg-spinner.
Squad for first and second Tests: Mahendra Singh Dhoni (c), Virender Sehwag, Gautam Gambhir, Virat Kohli, Sachin Tendulkar, Yuvraj Singh, Cheteshwar Pujara, R Ashwin, Umesh Yadav, Pragyan Ojha, Ajinkya Rahane, Harbhajan Singh, Ishant Sharma, Murali Vijay, Zaheer Khan.
Manoj tiwary should be inlcuded in the squad and wat happened to Munaf Patel who is one of best performers in the ODI world cup?
What about Manoj Tewari & Ashok Dinda? Bringing in Zaheer Khan who could not bowl in a regional match does not make sense at all. Still the age long politics persist in our selection policy. Dhoni's favorites always make the cut but a guy like Dinda or Varun Aaron will always be on the side lines. Fortunately Pyush Chawla was not selected, but I am sure Dhoni would have fought for his case even if not as a spinner then a one down batsman at least. Having greats like Sandeep Patil and Roger Binny in the selection panel, this was not expected.