The midfielder was back in action on Monday and also completed a full training session yesterday following a knee operation.
He has been pencilled in for a comeback in the home reserve fixture with Peterborough on January 6.
Providing he emerges through that unscathed, Andy Awford believes the 25-year-old can be in contention for the January 10 trip to Newport County.
He said: ‘Dunne trained Monday and then again yesterday, which was a nice and pleasant surprise for us all.
‘It has given everybody a boost seeing him out there.
‘He didn’t fly into James Dunne tackles, he was sensible but he took part in the whole session on both days.
‘I think Boxing Day and Sunday (Luton) will come too soon for him but with not having a game against Tranmere, you are looking at having every chance to make Newport.
‘He will play for the reserves on January 6 and if he gets through that he will be available for Newport as by that stage he would have had three weeks of training and a game.
‘James has done a lot of rehabilitation work with the physios prior to this week.
‘Sometimes they chuck a player back in and he can do that bit and then they take him out.
‘But they have allowed him to go and do the full sessions.
‘At least you know he is on the right track, it’s early days but he is on the road to recovery and we will see him a bit sooner than we thought.’
Dunne has missed Pompey’s last seven matches after picking up the problem in the warm-up against Carlisle.
He managed to see out the November fixture but has been sidelined since.