The Burnley goalkeeper is now second choice at Turf Moor behind Tom Pope and has not been called into the national team squad for over a year.
It has been a quick and drastic decline for Hart, who won titles with City but was dumped by Pep Guardiola when he arrived in 2016.
"It must seem like a very distant view for him because he's not playing first-team football but he can come back and be as good as he was before," said former England goalkeeper James.
"Obviously, he needs to play. If he still has aspirations of playing for England then he needs to be playing at the highest level.
"It was unfortunate in one sense that he went to Burnley where they had two very good English goalkeepers, although Tom Heaton's gone now.
"One thing I know about having worked with him very briefly at Manchester City is that this is a guy who will fight all the way.
"He's got talent and he's young enough."
He cites his own example when he thought his international career was over at the age of 36 after being left out the squad, but he won his place back two years later to play in the 2010 World Cup.
"I was in and out of the England squad for 13 years," he said.
"Steve McClaren dropped me from the squad when he took over and I thought that was my England career finished.
"Then all of a sudden at 38, Fabio Capello calls me back in again.
"I know Joe has confidence. You can be more confident at some times than at other times but I don't doubt that he is trying every which way to get himself in the right position.
"And if he gets the chance to play I just hope that he takes it with both hands and puts himself in a position where he is the number one again."
James, who has teamed up with GambleAware and the Football Supporters’ Association as an ambassador for the Safer Gambling campaign, says the spotlight on England keepers makes it tougher for them than their foreign counterparts in the Premier League.
Current England No.1 Jordan Pickford has come in for criticism despite helping the Three Lions to the World Cup semi-finals in 2018 but James says all goalkeepers can expect to come under fire sooner or later.
"It's like the sword of Damocles being an England goalkeeper - you know at some point you are going to get hammered," he added.
"Possibly it's more so than foreign goalkeepers because as English football fans we are more interested in English goalkeepers."
David James has teamed up with GambleAware and the Football Supporters’ Association (FSA) as an ambassador for the Safer Gambling campaign – Bet Regret. For more information visit: https://www.begambleaware.org/betregret/