Halfpenny suffered a chest injury in the Crusaders' pre-season game against Munster in Ireland but joins the side as it looks to build on the 39-0 win over the Rebels in the last round.
His selection has seen Johnny McNicholl move to the wing.
David Havili was named in the first five to eight hours in a selection surprise resulting from an All Blacks' selection panel request.
The starting pack is unchanged from last week, with the loose forward combination of Cullen Grace, Ethan Blackadder, and Christian Lio-Willie returning.
The Reds will be looking to break a run of losses in Christchurch that extends to 1999, but after their injury-time loss to the Blues last weekend they will be strengthened by the return of flanker Fraser McReight.
However, they will be without first five-eighths Tom Lynagh, who has a hamstring issue. Lawson Creighton replaces him.
Reds coach Les Kiss said, "Lawson is a very well organised player with a strong kicking game. We are very comfortable with him."
The emergence of wing Tim Ryan, who scored a hat-trick of tries on his starting debut last week, has seen Wallabies wing Suliasi Vunivalu dropped to the bench.
But Kiss is looking for the Reds to continue their improvement during the season.
"Parts of our game have grown in every match. We have confidence in the things that work for us, and we'll stay rock solid to those.
"We are going to one of the great places in the world to play rugby, and we will take on the challenge."
