Having enjoyed an incredible start to the campaign, the flying winger has been left twiddling his thumbs on the sidelines since picking up a hamstring injury against West Ham on December 15.
The problem has seen Townsend miss Tottenham's last nine matches - a run that looks unlikely to reach double figures.
The 22-year-old returned to full training this week and has been given the green light to play against Everton on Sunday.
"He's in the squad so we're hoping that he'll be in and around selection," Sherwood said.
"He's done enough training now for us to be confident that he can be dropped back into the squad. He's looked magnificent.
"The results don't suggest that he has (been missed), but I think whenever you've got a player like Andros, he can change a game in an instant.
"It's great to have him back and we're pleased to welcome him back to the squad. But the rest of the team has done very well over the recent period."
Townsend's return is a welcome boost for Spurs, who will be without Erik Lamela, Vlad Chiriches and Sandro through injury on Sunday.
Another back in contention is Mousa Dembele after missing the trip to Hull with an ankle injury.
The Belgium midfielder said the clash with Everton was one of their biggest matches of the season - sentiments Sherwood found hard to disagree with given victory would see Spurs usurp Everton in fifth.
"It's important because it's the next one and it's a team who are in and around us," he said.
"I think possibly the team who finishes fourth will be the one who takes the most points off the teams in and around them, and that includes Everton.
"It's very, very important and I'm glad that the players think it's as important as I do because they'll be reminded that it is a crucial game and it could be a springboard for us to go on a nice run again."
Tottenham could certainly do with a boost after the embarrassing 5-1 home defeat to Manchester City was followed up by a 1-1 draw at Hull.
Furthermore, the encounter with Everton at White Hart Lane is swiftly followed on Wednesday evening by a trip to eighth-placed Newcastle.
While Alan Pardew's side have impressed this campaign, many expect them to fall away as the season comes to an end - but not Sherwood.
"I think they'll be in the battle for fourth," the head coach said. "If they get a favourable result this weekend, we're playing them in midweek, if they were to beat us then they're still in it.
"It's open for any team to put a run together. There are teams up and around that spot who can put a nice run together and elevate themselves up there.
"I think the top three are away and are possibly away too far for anyone to catch."