The AC Milan forward often found himself in the headlines for off-the-field incidents during his time at former club Manchester City.
However, the 23-year-old has established himself as a key player at San Siro under both Massimiliano Allegri and Clarence Seedorf since his switch in January 2013.
Prandelli believes Balotelli still has plenty of room for development, but urged him to concentrate on football rather than other distractions.
"Mario Balotelli has the potential to be one of the greats. However, he needs to find a seriousness and a balance so that he can realise his potential," he told FIFA.com.
"In recent years he has wasted lots of energy on trivial things. The great champions don't do that. For them the only thing that matters is winning."
Balotelli will likely form a key part of Prandelli's attacking line-up at the World Cup this year - having featured regularly in his country's run to the Euro 2012 final and their qualifying campaign for Brazil 2014.
Prandelli explained there is a positive working rapport between the two, adding that Balotelli could prove pivotal for the Azzurri as they look to win the World Cup for a fifth time.
"We have a good relationship, and we both know how to get across what we want to say," he continued.
"All the coaches that have worked with Mario try to offer him something new, because they know the enormous potential he has. When he fulfils his potential he will make a huge difference to any team."