The Brazil coach spoke to The Athletic in an interview that covered Madrid's turbulent season, the prospect of Mourinho's return, and the culture of a squad accused of player power.
Ancelotti managed Real Madrid across two spells, winning three Champions Leagues and two La Liga titles in 353 matches. He knows the environment as well as anyone.
"To be back at Real Madrid, I will be really happy for him. He can do a fantastic job, as he always did in all the clubs that he was at."
He also acknowledged that rebuilding the atmosphere at the club will be a task in itself, regardless of who takes charge.
"Real Madrid has difficulties. The older generation of players needs to rebuild. In recent years, Real Madrid has lost some very important players — Casemiro, Kroos, Modric, Benzema and Nacho. The atmosphere in the squad is important. It comes from these players, who have more character, more personality. Real Madrid needs time to rebuild the atmosphere in the squad. To have success, you also have to find a good balance."
On the widely reported narrative that the Real Madrid squad is uncoachable, Ancelotti was emphatic.
"It gives the impression that Real Madrid's players do whatever they want. That's not true. It's complete nonsense."
"The players — when I was there, I had an idea, and I tried to discuss it with them to see if they agreed or not. We even did that in the Champions League final. When I have an idea, the player has to be part of it. I don't want to impose strategy. But that does not mean that we do not have a strategy. We had a strong strategy, because we won two Champions League trophies in four years, and the players were really focused on following the plan."
Mourinho, 63, is currently managing Benfica and has denied direct contact with Real Madrid. He is understood to be in final negotiations over a return to the Bernabéu, 13 years after his first spell ended in 2013. BBC Sport report he is the only candidate the club are pursuing.
Mourinho's first tenure at Madrid ran from 2010 to 2013, during which he won La Liga in 2011–12, breaking the record for points in a single season. Ancelotti succeeded him and won the club's long-awaited tenth Champions League title in his first season back.
Not all club legends share Ancelotti's enthusiasm. Iker Casillas, who clashed badly with Mourinho during his first spell and was dropped for Diego López, stated publicly that he does not want the Portuguese back at the club.
Real Madrid face a final three games to close out a trophyless season — Oviedo, Sevilla and Athletic Club — before the summer rebuild begins.