Aaron Smith returns from bereavement leave to start at halfback and captain the side, while Folau Fakatava is on the bench.
Regular Highlanders skipper Billy Harmon has returned to New Zealand for personal reasons.
His No 7 jersey is taken by youngster Sean Withy, so impressive when given a chance earlier this season, while form forward Hugh Renton reclaims the No 8 spot from Marino Mikaele-Tu’u.
Young Otago lock Fabian Holland is rewarded with a starting berth — replacing Pari Pari Parkinson — for his energetic display off the bench in the loss to the Force on Saturday night, while hooker Rhys Marshall comes on to the bench for an injured Leni Apisai.
Regular fullback Sam Gilbert has moved to second five with danger man Thomas Umaga-Jensen on the bench, presumably for a bit of a rest.
Gilbert has been in solid form and showed in the big win over the Fijian Drua he is completely at home in the midfield.
He will also cover first five with Freddie Burns dropping out of the 23.
Scott Gregory makes his first appearance of the season at wing, and Connor Garden-Bachop moves to fullback.
The exciting news is the return of star winger Jona Nareki to the bench after his long injury layoff.
Dermody is looking for a vastly improved performance against the Waratahs on Friday night.
"We were disappointed in our performance last week, as we didn’t play anywhere close to our best, which we need to do to get the results we are looking for as a team.
"The Waratahs are in a similar place to us, and we anticipate a real battle on Friday night as a win is vitally important to both teams."
Highlanders team to play Waratahs
Connor Garden-Bachop, Jonah Lowe, Fetuli Paea, Sam Gilbert, Scott Gregory, Mitch Hunt, Aaron Smith (captain), Hugh Renton, Sean Withy, Shannon Frizell, Will Tucker, Fabian Holland, Jermaine Ainsley, Andrew Makalio, Ethan de Groot.
Reserves: Rhys Marshall, Daniel Lienert-Brown, Saula Ma'u, Pari Pari Parkinson, Marino Mikaele-Tu’u, Folau Fakatava, Thomas Umaga-Jensen, Jona Nareki.
