The Durham all-rounder replaces Michael Vaughan, who has opted to concentrate on his role at the helm of the Test team.
Both Vaughan and Test opener Andrew Strauss were left out of the squad that will face the West Indies in two Twenty20 and three one-day internationals next week.
Hampshire all-rounder Dimitri Mascarenhas -- who was brought up in Australia -- and Warwickshire's South African-born batsman Jonathan Trott earn their first international call-ups as part of a 14-man squad.
Collingwood, 31, had been widely expected to get the role after England's leading one-day batsman, Kevin Pietersen, said he did not feel ready for the responsibility of captaincy.
Strauss was also in the reckoning but his current lack of form dampened his chances while England's leading all-rounder, Andrew Flintoff, is currently recovering from an ankle operation.
"The selectors believe that Paul's experience and performances in the one-day game make him the ideal candidate to lead the side," said David Graveney, chairman of the England selectors.
"He has been a key member of the one-day team for a while and we believe he is ready to take on the additional responsibility of captaincy."
Neither Flintoff, Sajid Mahmood (hernia) or Ravi Bopara (thigh) were fit enough for consideration and a further five players from the World Cup squad have been overlooked - Vaughan, Strauss, Jamie Dalrymple, Paul Nixon and Jon Lewis.
Graveney stressed: "Overall, we were keen to identify the best way for the team to play in the one day game, pick players who can perform certain roles and keep one eye on the need to build towards the World Cup in 2011.
"We have decided to give opportunities to players who have not been tried previously such as Jonathan Trott and Dimitri Mascarenhas as well as a fresh chance to others who have limited experience of one-day international cricket such as Alastair Cook, Matt Prior, Owais Shah, Ryan Sidebottom and Mike Yardy.
"Jonathan will give us options in the top three of the order and he has been in prolific form for Warwickshire in the Friends Provident Trophy this season. "Similarly, Dimitri Mascarenhas enjoys an excellent record in the shorter form of the game, has shown that he can take wickets on different types of surfaces and is also an effective hitter in the lower order.
"Andrew Strauss will be disappointed not to have been selected but we remain confident that he can recapture his best form in the one-day game and come back as a stronger player."
Nottinghamshire left-arm seamer Sidebottom is recalled six years after playing his two previous one-day internationals, having impressed during the recent Test series victory over West Indies by claiming 16 wickets.
He has also been rewarded by being added to the England Performance squad alongside Trott and Mascarenhas to increase its size to 28 players.
England one-day squad: Paul Collingwood (Durham capt.), James Anderson (Lancashire), Ian Bell (Warwickshire), Stuart Broad (Leicestershire), Alastair Cook (Essex), Dimitri Mascarenhas (Hampshire), Monty Panesar (Northamptonshire), Kevin Pietersen (Hampshire), Liam Plunkett (Durham), Matt Prior (Sussex), Owais Shah (Middlesex), Ryan Sidebottom (Nottinghamshire), Jonathan Trott (Warwickshire)