The former Anfield boss revealed he was in the hunt for the Spanish playmaker years before Arsene Wenger signed him for Arsenal, but his transfer fee at the time was prohibitive
Interim Chelsea manager Benitez was keen on Cazorla when he was in charge at Anfield, but was unable to persuade Villarreal to sell the playmaker, who eventually signed for Arsenal from Malaga last summer.
The 52-year-old believes the £12 million (€14m) signing has settled well at the Emirates Stadium, but warned that his side are more than ready for the visit of Arsene Wenger's team as he enjoys "top games".
"The chairman there [at Villarreal] wanted to keep the team and didn't want to lose one of his best players," Benitez told reporters. "It wasn't possible to sign him because it was a big risk with the amount of money we had to spend.
"At the time he was a winger and not playing between the lines or as a second striker. We knew he could be a great player, but he was [going to cost] too much at the time and we could not afford him.
"To come to England and settle down is not just down to the quality of the player but sometimes it also depends on the environment and in the case of Cazorla, he is doing well at Arsenal."
Benitez's Chelsea side have struggled at home in the Premier League of late, only winning one of their last seven games to fall 13 points behind league leaders Manchester United.
But the manager says a derby against a side such as Arsenal is the perfect tonic after the recent 2-2 draw at home to Southampton.
"After a draw at home, we have a top side coming to us and that is good for us," he added. "It gives us extra motivation and we will be focused. This is different from a normal game because the atmosphere is different.
"But if you are a top side you are pleased to play in this kind of game. The main thing as a manager is how to keep your players motivated in every game. With this game, it is easy. I like top games."