The Toffees have had a fine season to date, winning five of their nine Premier League matches and sitting ninth in the table.
They struggled recently in the absence of Richarlison though bounced back with a 3-2 win over Fulham at the weekend.
There is just over a month until the January transfer window opens with James’s Old Trafford future up in the air.
The Welsh ace signed for United from Swansea last summer though has struggled with the Red Devils and has only made four Premier League starts since football in England resumed following the country's first lockdown.
Though Danny Mills believes the 23-year-old would be a good option for Ancelotti when the window opens.
"I think we’ve seen one to 13 or 14 [in the Everton squad] is very, very strong but when you lose a couple of those players like a Dominic Calvert-Lewin, James Rodriguez, or Richarlison it does affect them," Mills told Football Insider.
"These are really good players and they don’t quite have the strength in depth to replace them.
"Someone like Daniel James could come in and sort that out. We’ve seen him play well but maybe he needs a fresh start.
"He went to Manchester United and started brilliantly and all of sudden his opportunities have been limited. As a young player, he’ll just want to be playing football."
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Ole Gunnar Solskjaer had used James perhaps more than he expected in his debut season at Old Trafford.
Speaking last month, however, the boss appeared to indicate he has no plans to let James leave, at least on a permanent basis.
Solskjaer said: "Dan's had a really good impact at the club and we're looking forward to developing him more."