The Blues forward 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.
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."
Source: PA
Source: PA