James, 26, marked his first Bundesliga start with a goal and an assist as Bayern moved top of the table.
"He did well, he had a good performance. He played with the team, for the team, together with the others, with a good combination," Ancelotti said.
"I think he has to improve his physical condition because he is not 100 per cent, but what he did today was really good."
Robert Lewandowski opened the scoring for Bayern from the penalty spot before goals from James and Arturo Vidal.
Ancelotti was satisfied with his side's display, saying: "The performance was good from the beginning until the end.
"We played with intensity, with good attacking play, compact when we defended. I think everything was OK."
Bayern are in action again on Friday when they host Wolfsburg.