Scotland suffered an agonising 20-16 second-round loss to France, a defeat made all the more painful by the denial of what would have been a match-winning try in the dying seconds after a video review.
Townsend said the team had come to terms with the result as they seek to maintain their grip on the Calcutta Cup against England, who have won their first two matches in this year's Six Nations.
"When you're coming in off the back of a defeat, you have to bounce back with a victory," the coach said after naming his team to play England on Thursday.
He added: "The full focus is on this game because it's our most important game of the season.
"It's the most important game for our supporters and we also play for a trophy... it's history. It's emotion.
"We've seen the impact this game has on Scottish supporters when we do manage to get a victory in this fixture. That'll drive us on Saturday."
Scotland are bidding for a fourth successive win over England, in stark contrast to a run of just three victories against them in the tournament between 1991 and 2017.
Townsend is glad to see the restoration of the Scots' self-belief.
"The game in 2018 (Scotland's first win over England in a decade) has certainly given the players confidence when they've taken on England in the last few games," he said.
The Scotland boss has made three changes to the side that started against France, with Blair Kinghorn and Kyle Steyn returning to the back three and former captain Jamie Ritchie recalled to the pack for the match in Edinburgh.
Toulouse full-back Kinghorn missed the opening two games with a knee injury, while Glasgow wing Steyn was a late dropout against France after his wife went into labour.
Blindside flanker Ritchie has been recalled in place of Matt Fagerson after starting in Scotland's dramatic 27-26 first-round win over Wales in Cardiff.
"Jamie has really accepted the challenge that was there about a month ago that there's increased competition in the back row and for that reason, he was no longer going to be captain," said Townsend.
"But since that conversation, he's played two games for Edinburgh and one for Scotland in Cardiff and he's played well.
"We believe this game will suit his strengths and the experience he can bring to the team as well will be a boost."
