The Anfield legend immortalised himself in the club's folklore after facing the Merseyside rivals as both a player and manager during his first spell in charge of the Reds.
Dalgish's final game in his previous stint as manager of the club was a 4-4 FA Cup draw against Everton in February 1991 - and the Scot is full of praise for what he sees as the best derby in football.
"The derbies in any city are special, and this one is probably more special than many others for very many good reasons," Dalglish told reporters on Friday.
"Until recently, the relationship between the fans has always been magnificent, something that sets Merseyside derbies apart from anywhere else.
"So it's a fantastic day for people and the city which can be proud of the heritage of the two football clubs. That's reflected when the two clubs play each other.
"We've got enormous respect for David Moyes and Everton and what they've done."
And the Scot admitted that it will be an emotional moment when he walks out onto the Anfield pitch for Sunday's game.
"I'm looking forward to the game, obviously there's a big story about coming back to Anfield for the first game which is going to be fantastic for myself," he added.
"It will probably be very emotional as well to stand in front of the punters. But it's more important how we go about it with the players and how they adapt as well.
"Sunday is a day that I'll remember for a long, long time, going back in."
As a veteran of Merseyside derbies, Liverpool's old No. 7 says there is one particular derby that stands out in his memory.
Just a month after the tragic Hillsborough disaster, Liverpool faced Everton in the 1989 FA Cup final - a day that Dalglish remembers well.
"The Hillsborough cup final was a special one because of the circumstances leading up to it," said Dalglish.
"Liverpool had fantastic support from Evertonians and suddenly we were competing with each other to win the FA Cup.
"I remember how the whole day was, how the fans supported both clubs and the total respect from Everton of the situation we had been in.
"For me that will always be the most special derby."