Shaw's Southampton colleagues Adam Lallana and Jay Rodriguez retain their places, and despite a lack of playing time, Frank Lampard and James Milner are both included alongside Merseyside trio Jordan Henderson, Ross Barkley and Sterling.
Sterling's recall is reward for some fine performances for LIverpool in recent weeks.
Jermain Defoe, who is set to complete the 2014 season with MLS outfit Toronto FC, surprisingly retains his place in the squad, while five Manchester United players make the selection, including Tom Cleverley and Wayne Rooney.
However, there is no room for Everton's on-loan Manchester City player Gareth Barry, Sunderland's in-form winger Adam Johnson or striker Andy Carroll, who only recently returned from long-term injury at West Ham.
"It would be very foolish of me in March to give a definitive 30 man squad (for the World Cup)," said Hodgson.
"This is the squad I have chosen for now. Andy Carroll has hardly played since his injury, Adam Johnson is a player we know and because of the competition we have decided not include him in this squad. The same with Gareth Barry."
However, there was a first call-up for Southampton's teenage left back Luke Shaw, who will still only be 18 when the World Cup starts in June.
"I am very pleased, in this squad you have 14 players, 23 years and under," Hodgson said.
"You also have seven over 30, that is a very good balance. In those 14, there are exciting names playing regularly and succeeding for their teams.
"It is nice to know the balance of players playing every week is much greater than it was two years ago."
Among those youngsters is Shaw, who made his Southampton debut at 16 and first England Under-21 start last September.
An academy graduate, he has played 49 matches for Southampton and is one of four players from the unfashionable south coast club in the squad.
"Anyone who has watched him play would not deny he deserves a place," Hodgson said.
"I think it was the right moment to invite him along with us."
Coaches of the World Cup finalists have to submit an initial 30-man squad for the finals on May 13 with the final squads being named on June 2.
As well as next Wednesday's match against Denmark, England are playing Peru in a friendly at Wembley on May 30 with further matches scheduled against Ecuador on June 4 and Honduras on June 7. The World Cup starts on June 12.
The squad marks the last time that the England manager can work with his players before FIFA’s deadline for the provisional 30-man World Cup squads on May 13.
Squad in full:
Defenders: Leighton Baines (Everton), Gary Cahill (Chelsea), Steven Caulker (Cardiff City), Ashley Cole (Chelsea), Glen Johnson (Liverpool), Luke Shaw (Southampton), Chris Smalling (Manchester United), Kyle Walker (Tottenham Hotspur).
Midfielders: Ross Barkley (Everton), Michael Carrick (Manchester United), Tom Cleverley (Manchester United), Steven Gerrard (Liverpool), Jordan Henderson (Liverpool), Adam Lallana (Southampton), Frank Lampard (Chelsea), James Milner (Manchester City), Alex Oxlade-Chamberlain (Arsenal), Raheem Sterling (Liverpool), Andros Townsend (Tottenham Hotspur), Jack Wilshere (Arsenal).