Watson bowled well in the first Test by taking two wickets but let himself down with the bat, scoring one and five when Australia were in trouble in both the innings.

He will return to play for Queensland against South Australia in the Weet-Bix Sheffield Shield clash at the Gabba starting on Friday.

Victorian fast bowler Peter Siddle will rejoin the 12-man squad after being released from a 13-man squad for the first Test in Brisbane where Australia beat the Kiwis by 149 runs.

National Selection Panel Chairman Andrew Hilditch while acknowledging Watson's fine show in the 0-2 series loss to India but said the omission was necessary due to the need of a specialist spinner in Adelaide instead of a makeshift pacer.

"It is obviously disappointing for Shane Watson to be omitted from the Test 12 after playing well for us during the four Test period in India and this week at the Gabba.

"We have been very pleased with Shane's development, but for the Adelaide Test our intention is to play a specialist spinner rather than the makeup used successfully in the first Test," Hilditch said.

"Having made that decision we thought it was important that Shane took the opportunity to play for Queensland to ensure he had played as much cricket as possible leading in to the remainder of what is very important Australian summer."