James was subject to some harsh treatment in the press following his error for England against Austria in September.
He then lost he status as England's Number 1 to Tottenham's Paul Robinson, but Mills insists Jamo's team-mates stuck by him and James has returned their faith by getting back to his best with the Blues.
The former West Ham stopper has been in good form of late, culminating in his Man of the Match display against Chelsea, when he produced at least three quality saves to frustrate the big-spenders and maintain City's 1-0 advantage.
"It is a measure of the stature of the man that he has bounced back so brilliantly from one mistake," Mills told the City website.
"Everyone makes mistakes, sometimes you get away with them and sometimes you don't.
"But we have never doubted Jamo or lost one ounce of faith in his ability. I think we showed him that in training on the first day he came back from the trip to Poland and Austria.
"We made a bit of fun of him, as footballers do. He had a laugh and a joke and put the whole thing behind him. That's what you have to do in football and he has done it very, very well."
Mills added: "He made some fantastic saves against Chelsea and overall we are looking a bit more solid at the back."