The Manchester City striker turned in an impressive display in Italy's 2-1 victory against Germany in the Euro 2012 semi-finals, scoring two goals to move to the top of the competition's scoring charts.
Prior to the tournament, Balotelli's antics on and off the pitch almost saw him left out of the squad, but Buffon is happy that the 21-year-old is finally showing signs of improvement.
"Mario has been playing very well because before he had all these great qualities, and that is always a good start," Buffon told reporters at a press conference.
"He is also part of a fantastic group of players, and he found a great coach like ours, who has made him a better player.
"But obviously the main merit on his improvement is on himself because he has worked hard to reach this level."
The Azzurri's opponents in Sunday's final, Spain, could have sealed Italy's exit before the knockout stages had they drawn 2-2 with Croatia in their final Group C match.
And Buffon praised La Roja's honesty and quality, adding: "I wanted to pay my respect to Spain because they were honest and did not draw against Croatia to eliminate us.
"Spain's best player? They have so many good players that it is very difficult to state my preference for one.
"It would be a lack of respect to a collective that has dominated the world's football scene in the last 4-6 years. I respect all of them, cannot just say one."
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"I am very happy that Spain are extremely motivated to play a final after winning a World Cup and Euro 2008," he stated.
"They know now how it is to win and will have a small advantage because of that."
Earlier in the tournament, Buffon cast doubt over Italy's chances of vicotry, but the 34-year-old thinks that his side have improved with each game.
"I said that we would not win the Euros if we kept on playing like we did against Croatia, because we were not able to reflect our superiority in matches," he explained.
"This has obviously changed, but we still have to wait for tomorrow to see if we are good enough to win the tournament."