Telford, who plays for Chelsea, is an experienced international player, with the 33-year-old helping England reach the semi-finals of the 2019 World Cup.
Telford said: "This is an amazing honour, although I really feel for KB and send her all my best wishes for her speedy recovery. The goalkeepers' union is not a cliche - although we are competing to play, we always want each other to do well.
"I am so disappointed for her but of course tremendously proud to get the chance to play at an Olympic Games. It is an incredible honour and I will give it all I can."
Telford will compete with Manchester City's Ellie Roebuck for the number one shirt for Britain's first game against Chile on July 21.
Head coach Hege Riise said: "We are very fortunate to be able to call on a goalkeeper of Carly's pedigree.
"Losing Karen was a blow of course but her selection was always a close-call with Carly, given they both have such strong reputations.
"Carly is a leader and she will be a big asset for us and what we are hoping to achieve."
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