James ended up being first choice at the last World Cup after Robert Green's howler against the United States.
His international career came to an end after the sorry last-16 defeat to Germany in Bloemfontein, which proved to be his 53rd and final England appearance.
Hart took over immediately afterwards and has since gone on to prove why he is regarded as England's best current goalkeeper by some considerable distance.
And James - who was briefly a team-mate of Hart's at Manchester City and then with England - insists Hart is better than Spain skipper Iker Casillas, the man generally regarded as the world's best.
"Joe is better than Casillas," James said. "He is recognised as number one because he won the World Cup and European Championship and has been fortunate to be at one of the biggest clubs in Europe for years.
"But Joe's distribution is 10 times better than Casillas'.
"He makes all the saves, he takes all the crosses. He can do much more than Casillas.
"If Casillas was in the Premier League, he would struggle. Put him in Wolves' team. See how good he is then.
"Joe is head and shoulders above everyone else with England now and I would struggle to see a better goalkeeper in Europe."
James made 100 appearances for City between 2004 and 2006, when he left for Portsmouth.
Hart's low-key arrival from Shrewsbury coincided with James' decision to leave, but even then he could tell the former Worcestershire academy cricketer was destined for big things.
"He came to Manchester City just as I was leaving," James added. "He was good then and has got better.
"It is annoying because as his rival with England, I wanted a reason not to like him. But he is such a good guy and was part of everything we did.
"He has all the basic character and physical needs. He kicks the ball well, throws it well, makes saves. He has the whole package."
Hart has also been mentioned as a potential England captain since John Terry was stripped of the honour.
It is a task Casillas has done superbly for Spain, although James believes Hart could do without the added responsibility.
"As wonderful as I think he is, I am not sure if he needs to be England captain," he said.
"He hasn't captained City and you have people like Steven Gerrard and Frank Lampard who have done that role."