England international midfielder Milner will move to Merseyside on a free transfer, subject to a medical, upon the expiry of his Manchester City contract.
During his time at the Etihad Stadium Milner has won the Premier League twice and the FA Cup in 2011.
Kewell, who won the UEFA Champions League with Liverpool in 2005, was at Leeds United at the same time as Milner and believes the 29-year-old will prove a valuable asset to Brendan Rodgers' squad.
"I think it's a good signing," Kewell told Liverpool's official website. "James obviously came through when I was at Leeds and I always knew he had that kind of talent.
"He's got that grit between his teeth, first and foremost. He's got that hunger and desire.
"Obviously when he left Leeds he played for a few other teams and he did well, but he didn't get to the potential that I thought he could have done.
"But then going to Manchester City, he kind of just rose up that little bit more and put his name back up there to being one of the best England players again.
"For Liverpool to snatch him up, I think he's going to do wonders.
"I think he can come in there and get respect straight away off the players because he's been there and done it - he's won titles, so he knows what it takes. I think that's a smart signing by Brendan to bring in, to hopefully help the team."
