The Scots are likely to need a win by eight points or more in Paris on Saturday to progress to the last eight.
Townsend was asked if he believed now was the time for his talented team to finally fulfil their potential.
“Well, why not? The players have performed in massive games before where we were underdogs,” he said.
“We’ve broken records before, whether it was not winning in Paris, not winning in Twickenham, not having beaten England in seven or right years.
“This is an opportunity for them to break another record and we believe in them. We believe where they are mentally as a group and where they are physically, they’re ready to play their best rugby.”
Ali Price has been chosen ahead of Ben White at scrum-half as one of 12 Scotland changes made for the decisive final Pool B match against the Irish.
Price is one of only three players to retain their places after Townsend gave fringe players a chance to impress during last week’s 84-0 thrashing of Romania.
Grant Gilchrist, who was captain for the day, and winger Darcy Graham, who scored four tries, also start again at Stade de France in Paris.
Full-back Blair Kinghorn returns to earn his 50th cap, while White does not make the 23, with Price’s fellow Glasgow Warriors scrum-half, George Horne, named on the bench.
Ollie Smith is the only other backline player among the replacements as Townsend opts for six forwards, including front row reinforcements Ewan Ashman, Rory Sutherland and WP Nel.
Captain Jamie Ritchie returns to lead the team after going off with concussion in the first half of the Tonga match a fortnight ago.
Price in place of White is the only change to the team that started the match against South Africa on the opening weekend of the tournament.
The 30-year-old made the number nine jersey his own for three years until losing his spot to White at the start of this year’s Six Nations.
Price had spoken in Nice earlier this week about how his improved maturity had helped him deal with losing his place just two years after being selected for British and Irish Lions duty.
However, he now appears to have convinced Townsend that he is worthy of being pitched back into the thick of it for one of Scotland’s biggest games in years as they bid to get a bonus-point win over the Irish or deny their opponents a losing bonus in order to reach the quarter-finals.
Flanker Hamish Watson, another 2021 Lion who has fallen from prominence this year, has not made the 23, despite impressing against Romania.
Scotland: Blair Kinghorn (Edinburgh); Darcy Graham (Edinburgh), Huw Jones (Glasgow Warriors), Sione Tuipulotu (Glasgow Warriors), Duhan van der Merwe (Edinburgh); Finn Russell (Bath), Ali Price (Glasgow Warriors); Pierre Schoeman (Edinburgh), George Turner (Glasgow Warriors), Zander Fagerson (Glasgow Warriors), Richie Gray (Glasgow Warriors), Grant Gilchrist (Edinburgh), Jamie Ritchie (Edinburgh), Rory Darge (Glasgow Warriors), Jack Dempsey (Glasgow Warriors).
Replacements: Ewan Ashman (Edinburgh), Rory Sutherland (unattached), WP Nel (Edinburgh), Scott Cummings (Glasgow Warriors), Matt Fagerson (Glasgow Warriors), Luke Crosbie (Edinburgh), George Horne (Glasgow Warriors), Ollie Smith (Glasgow Warriors).