The 64-year-old thinks that his compatriot could shine in the No.9 role for Los Blancos but admits that he is concerned over the world-record winger's fitness issues
The 24-year-old is currently sidelined with a back problem, having struggled for fitness ever since his world-record move this summer from Tottenham, making just three competitive appearances to date.
Toshack has little doubt that Bale will succeed at the Santiago Bernabeu once he has recovered from injury and would like to see his former protege team up with Cristiano Ronaldo in attack - especially given Benzema's poor run of form.
"With all the problems that Benzema has been having in front of goal, I would play with Cristiano Ronaldo and Bale in attack," the ex-coach told Cope.
"He could play in the No.9 position, in my opinion. He is an extraordinary player and I am confident that he will succeed."
Toshack is puzzled over Bale's fitness troubles this term, suggesting that they could even be the reason behind his protracted move from White Hart Lane during the summer transfer window.
"Something strange happened that delayed the transfer. Something doesn't add up for me," he added. "Bale gets really frustrated when he cannot play. Madrid know what they are doing, though. They know that there's a problem and they will look after it."
Bale worked under Toshack when the latter coached Wales between 2004 and 2010, with the Madrid winger making his international debut in 2006.