The uncapped Priestland was in top form for the Scarlets in their free-flowing Heineken Cup campaign including a scintillating try against Perpignan.
And Davies also believes Lee Byrne should return at full-back - despite a less than stellar substitute performance in the 26-19 defeat to England in Cardiff.
"Why not play Priestland at 10 against Scotland - he is the form outside-half in Wales," said Davies.
"Put Stephen Jones on the bench as security. I might play Jonathan Davies (at inside centre) with Priestland and put James Hook on the bench as well.
"Lee Byrne is definitely full-back because we have no one-one else cutting angles."
Meanwhile, another legendary Wales fly-half, Phil Bennett, has criticised the Welsh management for their handling of Jones.
The triple Grand Slam winner was critical of Warren Gatland's decision to reveal Hook was being considered for the fly-half spot ahead last week's game against England.
However Bennett still feels the time is right for the 25-year-old Hook to take over the No.10 shirt.
"I've always been a huge admirer of Stephen," said Bennett. "But his confidence must be dented by the Wales management's rather stupid leaking of selection information to the media.
"That was poor management, but I would still start with James at outside-half in place of Stephen against the Scots because the time has come for us to get in behind defences, rather than always playing across the front of them."