Watson aggravated a chronic calf injury on his way to making 83 during Australia's crushing Boxing Day Test victory at the MCG. Skipper Michael Clarke told reporters after the match that the injury-plagued all-rounder will miss at least the third Test, which starts on Thursday at the SCG.
Maxwell, renowned for his explosive hitting and sharp fielding, boasts a batting average of 42 and bowling average of 33.38 after two years of first-class experience with the Bushrangers.
The 24-year-old off-spinner could win himself selection for Australia's tour of India early next year if he performs productively with the ball in spin-friendly Sydney.
Still battling hamstring soreness that threatened to keep him out of the Melbourne Test, Clarke himself is no certainty to play despite being the match's only centurion as Australia beat Sri Lanka by an innings and 201 runs.
Queensland batsman Usman Khawaja has been placed on standby.
Left-arm paceman Mitchell Starc will return to the Test side after being controversially asked to carry the drinks in Melbourne.
And given it will be highly unlikely that four quicks will be taken into the Sydney Test, incumbent pacemen Mitchell Johnson, Peter Siddle and Jackson Bird will most likely be fighting for the other two pace bowling spots.
Australia enter the New Year Test with an unassailable 2-0 series lead.
Australia's 13-man squad: Michael Clarke (capt), Jackson Bird, Ed Cowan, Phil Hughes, Mike Hussey, Mitchell Johnson, Usman Khawaja, Nathan Lyon, Peter Siddle, Matthew Wade, David Warner, Mitchell Starc, Glenn Maxwell.
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