Gerrard ended his playing career in 2016 following an up-and-down stint with the LA Galaxy after departing Liverpool, where he spent almost three decades and became a legendary figure with the Premier League club.
He took charge of Rangers last summer, and oversaw a victory over Celtic at the Ibrox last December that increased his stock among supporters.
Gerrard recently featured for Liverpool once again as part of a charity match, where he scored the winning goal in the final minute in a victory over AC Milan legends at Anfield.
And Murphy saw enough in that game to convince him that the 38-year-old former midfielder could still do a job for the team he manages.
"I don't know his fitness right now. But what I saw the other day and what I've seen over the years, with a little bit of tweaking, he would walk into that Rangers team," he told talkSPORT.
"He would boss it. He would be humble and say no. He's still in his 30s."
Celtic currently maintain a 10-point lead over Rangers in the league, despite the mid-season exit of Brendan Rodgers to Leicester City.
The two historic rivals are set to face off on Sunday, and Murphy says that, if he were a player, Gerrard could make a real contribution in that match with his current skillset.
"If he put his boots on against Celtic it wouldn't surprise me in the slightest if they won and he got the winner.
"That's just what he does. But he's not going to do it so let's not get hopeful for the Rangers fans."