Former Bath prop Stevens is currently serving a two-year suspension following his admission that he took cocaine last season.
Critics had suggested that the 27-year-old would never be able to overcome the incident but Dallaglio believes Stevens, who has just signed for Saracens from January 2011, will be an even better player when he returns.
"You don't run before you can walk and he will have to put down some foundations and he has got to find out where he is at, but if his track record is anything to go by it won't take him too long to get back on track," said Dallaglio, when asked about his 2005 Lions team-mate.
"He will end up being even more determined because failure does fuel success. He will be fuelled by a desire to prove people wrong and silence the doubters.
"Matt is proven at the highest level and I am sure he will come back not just at that level but he has the potential to become an even better player than he was before."
Dallaglio publicly supported Stevens last year, despite many others being unwilling to do so.
The 1997, 2001 and 2005 Lion even went as far as to say that London Wasps - the club Dallaglio represented as a player and now represents as a member of the Board - would be interested in signing Stevens when his ban expires.
And Dallaglio now hopes that the South African-born England international will prove his doubters wrong and use his experience to benefit other potential drug users.
"The message I was trying to get across was that you shouldn't shut the door on people who have made a mistake because we always make mistakes," added Dallaglio.
"Hopefully he can get his career back to where we all think it can get to - and in doing so probably become a role model for people who are tempted to make similar mistakes themselves. Good luck to him."