In an interview with bcci.tv, Yuvraj said Dhoni was "extremely good" as captain, but had stepped down at the right time; Dhoni gave up the ODI and T20I captaincy last week.
"I think he's been an extremely good captain for India. We've won World Cup and the Champions Trophy under him. We were the No. 1 Test team under him. These are amazing achievements and I'm not sure how many [other] captains have that," Yuvraj said.
"I think he took a very good decision stepping down because I'm sure he felt that it's [time for] the next guy to take over before the World Cup and I'm sure he saw that in Virat.
"He has a lot to contribute as a player in the team. I think he's gonna play the way he used to. We were both very fearless when we used to play together, so hopefully we can do the same in the upcoming series."
Yuvraj, who was recalled for the upcoming series against England, has spent more than three years out of the Indian ODI team, and hasn't played an international match since rolling his ankle in a World T20 game against Australia in March 2016. He was picked on the basis of his form in the 2016-17 Ranji Trophy - 672 runs in five matches for Punjab, at an average of 84.00 - and said he had been working on his fitness, especially considering he is now in the mid-30s.
"I've been working pretty hard on my fitness because as you grow older, you've got to work harder on your body. In your mid-30s your body asks for a lot of training and recovery time. I've changed my diet completely and I've been putting in some extra hours because I need to be careful after what my body went through."
He is also aware that the new captain demands a 100% from his team.
"Virat commands [sic] performance. He's been very consistent throughout his career, and that consistency and fire has converted him into a very good captain," he said. "He demands 100% effort from the team and that is the hallmark of a good captain.
"He gets better every year - early in his career he got a lot of runs, then he got a lot of hundreds and now in Tests he's getting double hundreds. I don't know who else averages more than 50 in all formats. Hopefully he continues that and takes India to the next level."