The µ(I)-rheology is a nonlinear viscous law, with a strain-rate invariant and pressure-dependent viscosity, that has proved to be effective at modelling dry granular flows in the intermediate range of the inertial number, I. This paper shows how to incorporate the rheology into depth-averaged granular avalanche models. To leading order, the rheology generates an effective basal friction, which is equivalent to a rough bed friction law. A depth-averaged viscous-like term can be derived by integrating the in-plane deviatoric stress through the avalanche depth, using pressure and velocity profiles from a steady-uniform solution to the full µ(I)-rheology. The resulting viscosity is proportional to the thickness to the three halves power, with a coefficient of proportionality that is angle dependent. When substituted into the depth-averaged momentum balance this term generates second-order derivatives of the depth-averaged velocity, which are multiplied by a small parameter. Its inclusion therefore represents a singular perturbation to the equations. It is shown that a granular front propagating down a rough inclined plane is completely unaffected by the rheology, but, discontinuities, which naturally develop in inviscid roll-wave solutions, are smoothed out. By comparison with existing experimental data, it is shown that the depth-averaged µ(I)-rheology accurately predicts the growth rate of spatial instabilities to steady-uniform flow, as well as the dependence of the cutoff frequency on the Froude number and inclination angle. This provides strong evidence that, in the steady-uniform flow regime, the predicted decrease in the viscosity with increasing slope is correct. Outside the range of angles where steady-uniform flows develop, the viscosity becomes negative, which implies that the equations are ill-posed. This is a signature of the ill-posedness of the full µ(I)-rheology at both high and low inertial numbers. The depth-averaged µ(I)-rheology therefore cannot be used outside the valid range of angles without additional regularization.