Australia have also recalled fast bowler Mitchell Starc in place of Jackson Bird, captain Michael Clarke told a news conference on Tuesday.
Khawaja has suffered a torrid time during the series, averaging 19 runs and passing 50 only once in six innings at number three as Australia's batting lineup has repeatedly failed.
Faulkner, 23, is a left-arm medium pace bowler and middle order batsman, and has taken 11 wickets in eight one-day internationals.
"He's got the toughness to mix it with any opposition in any form of the game at the highest level," Clarke said.
"He's a fighter, he's a competitor, he mightn't look the best all the time but he'll find a way to stay out there and help his partner to go on and make a hundred or make sure he's batting with the tail and find a way to get them through it."
Faulkner played in all four of Australia's tour matches and is expected to bat at number seven, with Shane Watson replacing Khawaja at three and Brad Haddin moving up one to six.
"With the ball he is extremely competitive and will find a way to take wickets as he's done so far on this tour and in the shorter form of the game," Clarke added.
"Generally, the better conditions are for batting the better bowler James is because he is at you all the time."
The return of Starc, who played in the first and third Tests, will strengthen the lower-order batting and will offer a greater wicket-taking threat, with Bird taking only two in his one Test at Durham.
England lead the series 3-0.
Image: James Faulkner
Photograph: Ryan Pierse/Getty Images
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