Paine did not play a senior game with Collingwood in 2013 and became a trade option this week as the Magpies looked for options to secure Karnezis.
North Melbourne had expressed interest in Karnezis, but Collingwood remained his preferred club and he returns home to Victoria after 21 games in three seasons.
Paine, who played six games in 2012, appeared to fall out of favour with Magpie coach Nathan Buckley and was not selected at senior level this season.
The 20-year-old, who kicked 45 goals in the VFL in 2013, is the first player to join the Lions during the Gillette AFL Trade Period as a number of young players leave the club.
Lions reel from toughest trade time
Collingwood preferred to use defender Ben Reid as a forward late in the season rather than give Paine an opportunity, but he is well placed to earn games with the Lions.
The recruiting of Sydney Swans' Jesse White also appeared to push the young forward further down the pecking order at the Westpac Centre.
Collingwood preferred to use defender Ben Reid as a forward late in the season rather than give Paine an opportunity, but he is well placed to earn games with the Lions.
The recruiting of Sydney Swans' Jesse White also appeared to push the young forward further down the pecking order at the Westpac Centre.
"It's been ongoing for week or two. It's a nice straight swap," Collingwood's national recruiting manager Derek Hine said of the deal.
"It gives Jackson an opportunity where he's probably third or fourth in line here, so it's a win win I think,"
The Magpies look at the inclusion of Karnezis as a boost to their midfield, despite his having rarely played through that part of the ground while at the Lions.
"He's a 191cm mid," Hine said.
"He's got that utility scope. He's played a lot down back. We see him potentially going through the midfield as that taller mid type."
Karnezis has long been on the Magpies' radar but they looked to have lost the inside running on a trade for a late draft pick when North Melbourne joined the race early this week.
That development left Collingwood with only pick No.67 available to trade for Karnezis, well behind the Kangaroos offer of pick No.47, meaning a player needed to be traded.
That development left Collingwood with only pick No.67 available to trade for Karnezis, well behind the Kangaroos offer of pick No.47, meaning a player needed to be traded.
Overall, Hine suggested that the club was satisfied with the work done on the list through the Gillette Trade period.
"The closer you are to the nose the more chance you are of getting that elite talent. We've been really pleased that we've been able to sneak in there and the opportunity presented itself with the West Coast trade and so we thought it makes the loss of Dale (Thomas, to Carlton) a little bit more palatable."
