The former Everton player suffered knee ligament damage in late August and was expected to be side-lined until the 2011-2012 campaign.
But he has made encouraging progress with his rehabilitation and has participated in a practice match.
True Blue: James McFadden could make a welcome return to action before the end of the campaign
Blues manager Alex McLeish is pessimistic about McFadden's chances of playing at senior club level this season but representing his country in the Carling Nations Cup tournament is a possibility.
McLeish said: 'James has joined the young players in training and played in a small sided game with them on Monday. Now it just depends on the reactions to his knee.
'I would think hopefully we can get over the line and he can make some kind of appearance before the end of the season.
Scot of bother: McFadden hopes to feature in the final round of internationals of the season
'We just have to see if there is any reaction to what he has been doing, when he has been involved and back with the group again.'
When asked if he would be happy for McFadden to play for Scotland, McLeish said: 'If there is no reaction.
'I would suspect the doctor would be cautious about it and we would look to try and have an agreement with Scotland. But again we don't know if he is near at all (to playing) as of yet.'
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Explore more:People: James McFadden, Alex McLeish Places: Birmingham, Scotland