Prop Steve Price has lost his place in Australia's Test side for Saturday night's (Sunday morning AEDT) crucial Tri Nations clash with Great Britain at Hull KC Stadium.
Kangaroos coach Wayne Bennett is still to finalise his 17-man squad.
But Price, who has played in every Tri Nations game and the Test against France, has been omitted to allow Dragons forward Jason Ryles to start in the search for "a better balanced pack".
As expected, Craig Gower will start at halfback inside Trent Barrett, giving Australia added size and options around the rucks.
Bennett has named Scott Prince and Craig Wing on a five-man bench which includes Waterhouse, Mark O'Meley and Willie Mason.
He will decide on match morning whether to go with Wing or Prince as his utility bench player with the former looming as the likely choice.
"We were really keen to balance the bench more," explained Bennett who warmed to the form of Waterhouse after he and Gower combined to score three tries in the 44-12 Test win over France last weekend.
"If we stayed as we were we had three front-rowers on the bench, Mason, O'Meley and Ryles.
"We're expecting the conditions to be a lot different to what they were in Wigan, there's been no rain and the track will be a lot firmer.
"Waterhouse's form was pretty good until he was left out in the last Test (against Great Britain) and he played pretty well against France."
Bennett admitted the Gower-Waterhouse combination was very appealing.
"I've coached against them enough times to know how lethal they can be," he said.
"Waterhouse knows how to get to the try line and Craig knows how to get wide and get him the ball at the right time and also his mobility out wide gives us a better look."
Bennett said Price had not been dropped on form, but for the balance of the team.
"I didn't drop him on form, he hasn't let anyone down," he said.
"But someone had to go and it had to be one of the front-rowers and I just felt his match fitness was a little down.
"It's an Australian team and it's pretty hard to get into.
"Other guys have put their hands up and we need a more balanced pack."