The Switzerland international has missed the Gunners' last four games due to suspension, but he is eligible to feature in the first leg of the last-16 tie and comes straight back into the side.
Xhaka is one of two alterations to Arsenal's starting lineup from the 2-0 win over Hull City last weekend, coming in for Theo Walcott, while David Ospina is also preferred to Petr Cech in goal - as announced by Arsene Wenger on the eve of the match.
Back-up keeper Ospina has started just eight games for the North London outfit this term, six of which came during the group stage of this competition.
Javi Martinez and Douglas Costa have been selected by Carlo Ancelotti in the attack line, meaning no place for Thomas Muller, but Xabi Alonso has overcome an injury sustained earlier this week in time to feature from the off.
Bayern Munich: Neuer; Lahm, Hummels, Martinez, Alaba; Alonso, Vidal; Robben, Thiago, Costa; Lewandowski
Subs: Ulreich, Rafinha, Bernat, Muller, Coman, Kimmich, Sanches
Arsenal: Ospina; Bellerin, Mustafi, Koscielny, Gibbs; Xhaka, Coquelin; Iwobi, Ozil, Oxlade-Chamberlain; Sanchez
Subs: Cech, Gabriel, Monreal, Elneny, Walcott, Welbeck, Giroud
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