The 31-year-old's captaincy was reviewed at the start of the year after he was sent off for kicking Fernando Amorebieta in the 2-1 defeat at Fulham.
It was Nolan's second red card in less than four weeks after lunging at Jordan Henderson against Liverpool, leading Allardyce to say "there's something wrong with his mentality at the minute".
The Hammers skipper has certainly made amends since then, netting five goals in as many league games since returning from suspension.
The latest came in Saturday's 3-2 defeat of Southampton, in which he also provided an assist and earned Allardyce's praise as the Hammers moved to tenth.
"I can believe the turnaround because I know his qualities," he said of Nolan, given a standing ovation when substituted against Saints.
"What I like about it is that he has gone about his job and made sure he repays everybody at the club for what happened.
"It was the lowest point of his career, I think, because it was not just one sending off but two in a short period of time.
"The contribution now is massive and it is not just the goals, but the pass he made for the first goal - a top quality pass at this level, which split open a very resilient Southampton defence. Long may it continue.
"Feeding off the front man is Kevin's great quality. Everybody talks about being with Andy Carroll, but he hasn't been there for a while and Kevin is still feeding off the front men and the balls in the box.
"Our quality in the final third is getting so much stronger now and that is why we are winning games of football because we've always been good at defending."
Nolan has been key in West Ham's revival, with their 100 per cent record in February taking them from the relegation zone to the relatively dizzy heights of the top half.
The latest win came courtesy of strikes from Matt Jarvis, Carlton Cole and Nolan, as the Hammers turned the match on its head following Maya Yoshida's early header.
"It has been a fantastic run for us," Allardyce said.
"The four wins on the trot from where we were is an outstanding performance by the players.
"I thank them for their efforts and the quality they are showing at the moment.
"In the Premier League it is all about the resilient qualities in defence and you have to score a goal, which today contributed massively in us winning this game.
"The three goals we scored were excellent and that got us back after going 1-0 down so early on. Credit to all the players."
While West Ham's win looked comfortable on paper, they had to ride their luck at times against attack-minded Southampton.
Saints had 25 shots over the course of the match, leading manager Mauricio Pochettino to change tack after previously saying "statistics are evil".
"I do like statistics today, I do like them today to justify the defeat," the Argentinian said.
"I am very disappointed with the defeat today. I thought we fully deserved to get something more from that game.
"We had full control in the game and that even led us to go 1-0 up. It is clear that the 1-1 goal came from an offside position and that was unlucky for us.
"Then the team struggled to recover from going 2-1 down and that made everything quite difficult for us as well.
"In the second half we created many good chances and were unlucky not to get the 2-2, which actually changed the game.
"Overall today, I thought we were quite unlucky with the refereeing decisions and to have not scored more goals."
While it is not uncommon for managers to highlight the officials' performance after a match, Pochettino's unprompted mention raised eyebrows given this was Mark Clattenburg's first Saints match in since the club's much-publicised complaint about him.
The Argentinian, though, insists there is no bad blood towards the referee, despite feeling hard done-by.
"The refereeing decisions actually influenced the game today and we were unlucky in that sense," Pochettino said.
"We don't want to make anything more of this. It seems that the stars are not with us whenever Mr Clattenburg referees for us."