The Italian forward has recovered from an ankle problem that kept him out of Sunday's 3-2 defeat to Manchester United, and is one of five changes for the home side
The Italian striker missed Sunday's FA Cup defeat to Manchester United with an ankle injury but is back for Roberto Mancini's men at the Etihad Stadium.
His return is one of five changes for City, with Joe Hart, Gael Clichy and Gareth Barry all coming into the side, as well as Stefan Savic, who replaces suspended captain Vincent Kompany.
The club confirmed that Spanish midfielder David Silva is absent through injury, but suggested that he will not be unavailable for a significant amount of time.
City's official Twitter said: "Silva misses out with an ankle problem which reportedly will not keep him out of the side for too long if you're worrying!"
For Liverpool, Andy Carroll starts after scoring a rare goal from the bench against Oldham Athletic in Friday's FA Cup tie.
Kenny Dalglish makes six changes in total from the Reds' last outing, though captain Steven Gerrard retains his place alongisde Craig Bellamy, Jose Reina, Martin Kelly and Jay Spearing.
Manchester City starting XI: Hart; Richards, Savic, Lescott, Clichy; A.Johnson, Barry, De Jong, Milner; Balotelli, Aguero
Subs: Pantilimon, Zabaleta, Kolarov, Onuoha, Hargreaves, Nasri, Dzeko
Liverpool starting XI: Reina; Kelly, Skrtel, Agger, Johnson; Spearing, Henderson, Gerrard; Downing, Carroll, Bellamy.
Subs: Doni; Jose Enrique, Coates, Kuyt, Carragher, Shelvey, Adam.