Centre Tuilagi has only started on the wing once in 44 England caps.
The move makes way for Owen Farrell to start at 12 alongside fly-half Marcus Smith, with Henry Slade at 13.
Dawson said Tuilagi is "world-class in midfield" and selecting him in the back three "does not make any sense".
Adam Radwan, who opened the scoring in the 69-3 thrashing of Tonga last weekend, drops out of the matchday squad to make room for Tuilagi, with Jones only naming two backs on the bench.
Fans may at least be buoyed by the revelation that Tuilagi recently recorded his fastest speed ever on the pitch after a fat loss programme that has increased his muscle mass.
Nevertheless, Dawson was unsure the Sale back was best used on the wing, adding on BBC Radio 5 Live: "I'm sure there are lots of reasons why [he's been picked there] that we will never know about, but it slightly concerns me that we have made life easier for Australia with that selection."