The 25-year-old replaces Conrad Smith at outside centre in one of four changes from the team which lost 26-24 to Australia in Hong Kong last weekend.
Hosea Gear, who scored a hat-trick for the New Zealand Maori in their 35-28 victory over England in June, replaces the injured Cory Jane on the wing.
Alby Mathewson will make his starting debut at scrum-half in place of Jimmy Cowan while Samuel Whitelock takes over from Tom Donnelly in the second row.
The All Blacks have been tracking Williams since he walked out of his NRL contract with the Canterbury Bulldogs in 2008 and switched codes to sign for Toulon.
Williams played alongside Jonny Wilkinson last season and then returned to New Zealand in the summer, since when he has lit up the ITM Cup for Canterbury.
Smith drops out of the 22-man squad with a slight hamstring injury and Williams has big shoes to fill at outside centre.
"The midfield at the moment is world class with Conrad and Ma'a Nonu playing particularly well. He is going to have to bring a lot of skill and expertise to match that," said assistant coach Steve Hansen.
"We know he is a classy individual. We have seen him play very, very well in the ITM Cup. When he gets his opportunity we are going to have to see that same ability. He is a good ball-carrier, he is quick, he offloads. He has the whole package. We just have to see if he can do it at the highest level."
After he signed for Toulon, Williams was plagued by injury and constant doubts about his ability for over a year.
It was only when Wilkinson signed for the club the following summer that Williams slowly began to realise his full potential in the game.
"When I first went to Toulon I was injured a lot and I didn't know if I could cut it. I had a lot of self-doubts," said Williams.
"Fortunately, Tana Umaga (then Toulon coach) had the foresight that I could play rugby even before I did and playing with Jonny last year gave me a lot of confidence.
"I used to speak to Jonny about how much it meant to him to play for his country and how much he got out of it. On top of that was the driving factor of trying to prove myself in rugby.
"To play alongside some greats in Jonny, Tana Umaga, Felipe Contepomi, Joe Van Niekerk really helped my game because I knew those guys had reached the top.
"After that I felt I could mix it with the best. That is why I wanted to go back and have a crack at the All Blacks. To prove to people and to myself that I could play. The biggest thing for me is pulling on that black jersey.A couple of years ago it seemed so far away."
Williams had been on the All Blacks radar virtually from the moment he controversially walked out on his contract with NRL club Canterbury Bulldogs and moved to France.
But even this time last year, Williams was uncertain about whether he had it in him to push for that All Blacks jersey.
"I rang him when we played France last year and he said, 'I'd like to play for the All Blacks but I will only come back to New Zealand if I think I'm good enough'," recalled All Blacks coach Graham Henry.
"It only really became a talking point at the end of Toulon's season and he really thought he could be competitive."
Flush with new-found confidence, the 25-year-old part-time boxer returned to New Zealand at the end of the Top 14 season and he made an immediate impact on the domestic ITM Cup for Canterbury.
Williams will start alongside Ma'a Nonu in a heavyweight midfield and Mark Cueto admitted England are not quite sure how to stop a 17 stone powerhouse with sublime handling skills.
"We've got a load of computer footage to analyse all their players. When you click on Sonny Bill it looks like Superman, it's absolutely ridiculous," he said.
The All Blacks' centre partnership of Williams and Nonu weighs in at 212kg, eight kilograms heavier than England's pairing of Hape and Mike Tindall. "It is going to be a hell of a physical contest," said Henry, affirming the All Blacks' intent to tackle England head on.
"There is a resolve in the team to put in an improved performance this weekend and the team has worked hard on that this week. There is excitement in the camp as well, with the All Blacks playing England at Twickenham for the Hillary Shield always a marvellous occasion."