Scotland, who suffered an agonising last-gasp Rugby World Cup quarter-final loss to eventual runners-up Australia after a controversial decision by South African referee Craig Joubert went against them, begin their Six Nations campaign at home to England on February 6.
Dunbar was recalled after a knee injury ruined his chances of playing at last year's World Cup in England.
But Glasgow team-mate Ryan Wilson was left out, with the flank facing a potentially lengthy ban after being cited for allegedly grabbing the testicles of Northampton's scrumhalf Lee Dickson.
The Scots will hope to use their encouraging World Cup performance as a springboard for an improved showing in the Six Nations, having finished with the 'wooden spoon' after losing all five of their matches in last season's Championship.
"We've selected a mixture of experience with some exciting young players coming through, some of whom have experienced the Rugby World Cup and are eager to move forward, take the RBS 6 Nations head on and show that we can develop our game and be competitive," said Cotter of a side that will again be captained by scrum-half Greig Laidlaw.
"I think there should be confidence," the New Zealander added. "The guys have worked hard and improved. There are positive signs that we can compete, and this Championship will give us another opportunity to measure ourselves against very good opposition in a tough competition.
"The guys believe that we can compete, dominate and secure victories in these games."
Scotland 35-man squad for the Six Nations Championship announced on Tuesday:
Fullbacks: Stuart Hogg (Glasgow), Ruaridh Jackson (Wasps/ENG)
Wings: Sean Lamont (Glasgow), Sean Maitland (London Irish/ENG), Tommy Seymour (Glasgow), Tim Visser (Harlequins/ENG)
Centres: Mark Bennett (Glasgow), Alex Dunbar (Glasgow), Peter Horne (Glasgow), Matt Scott (Edinburgh), Duncan Taylor (Saracens/ENG)
Flyhalves: Finn Russell (Glasgow), Duncan Weir (Glasgow)
Scrumhalves: Sam Hidalgo-Clyne (Edinburgh), Greig Laidlaw (Gloucester/ENG, capt)
Back-rows: Adam Ashe (Glasgow), John Barclay (Scarlets/WAL), Blair Cowan (London Irish/ENG), David Denton (Bath/ENG), Chris Fusaro (Glasgow), John Hardie (Edinburgh), Josh Strauss (Glasgow)
Locks: Jonny Gray (Glasgow), Richie Gray (Castres/FRA), Tim Swinson (Glasgow), Ben Toolis (Edinburgh)
Props: Alasdair Dickinson (Edinburgh), Zander Fagerson (Glasgow), Moray Low (Exeter/ENG), Willem Nel (Edinburgh), Gordon Reid (Glasgow), Rory Sutherland (Edinburgh)
Hookers: Ross Ford (Edinburgh), Pat MacArthur (Glasgow), Stuart McInally (Edinburgh)
Scotland Six Nations fixtures:
February 6: v England (h)
February 13: v Wales (a)
February 27 v Italy (a)
March 13: v France (h)
March 19: v Ireland (a)