The former Three Lions boss is convinced the Aston Villa ace will be in England's final 23 for South Africa.
Venables, who gave Milner his senior debut when he was the manager of Leeds United in 2002, has gone further to say the 24-year-old should be in the starting line-up for England's World Cup opener on June 12.
"Everyone is focused on (Wayne) Rooney, which I fully understand. He is an exceptional player," Venables told the Sunday Mirror.
"But every World Cup throws up a surprise package, someone who comes from nowhere to excel.
"There are a few England players who could do that, and I think Milner has the potential to be one of them."
He added: "He can play really well in every midfield position - and has even played well for England at right-back. But I would like to see him start in midfield."
Milner's inspired performances for Villa during their last Premier League campaign helped the versatile midfielder pick up the PFA Young Player of the Year and a place in Capello's provisional squad of 30.
The former Newcastle star could also be challenging Gareth Barry for a spot in Capello's starting XI if the pair make it into the final 23-man squad.
However with the Manchester City ace still in a race to come back from an ankle injury, Venables believes Milner should be an instant replacement if Barry fails to recover in time.
"He (Milner) has a fantastic team ethic. He is a glutton for work, an end-to-end player and he isn't a bighead," said the 67-year-old.
"He is two-footed and can tackle as strongly as any opponent.
"There is hardly any weakness to his game. I know he is the hottest property in the Premier League at the moment, what with Manchester City and Chelsea both chasing him, but he is so modest and down to earth and his head won't be turned by all the attention."