London 2012 competitor Espey qualified the Irish boat by finishing 40th overall at the 2014 Sailing World Championships in Santander, Spain.
However Carlow man Lynch, 20, made the grade at this year's Laser class world championships in Mexico.
The event was the third and final trial in the selection series.
Lynch became the youngest ever Irish sailing helmsman to qualify for the Olympics after seeing off the challenge of Espey and promising Baltimore sailor Fionn Lyden.
Espey led by six points going into the final trial but finished 24 places behind Finn, while Lyden narrowed the gap on Espey by finishing 11 places ahead of him at the Worlds, but still finished the trial third.
Sailing for the National Yacht Club, Lynch emerged from the four-day preliminary round of the world championship as the only Irish sailor to reach the Gold fleet for the top 56 competitors in the 112-strong event.
That result helped secure an advantage over Espey and Lyden who sailed the finals in the separate Silver fleet, finishing 67th and 78th respectively overall.  Lynch placed 54th in the Gold and overall.
Competing in the Men's single-handed event, Lynch will now join newcomers Andrew Brewster and Saskia Tidey (Women's skiff) along with London 2012 veteran Annalise Murphy (Women's single-handed) and Ryan Seaton with Matt McGovern (Men's skiff) to be nominated by the board of the Irish Sailing Association to the Olympic Council of Ireland for inclusion in the Irish team at Rio 2016.
Bangor sailor James Espey will not compete in the Rio Olympic Games after Finn Lynch qualified to represent Ireland in the Laser Standard class.