The 22-year-old came through the Chelsea youth system and is now regarded as one of the best right backs in world football.
He has been instrumental in helping Chelsea win the UEFA Champions League and UEFA Super Cup since making his first team debut in September 2019.
James put in an inspired display as Chelsea won their first Champions League game at the third attempt this season, seeing off Italian champions AC Milan 3-0 at Stamford Bridge on Wednesday.
James scored once and assisted another for Pierre-Emerick Aubameyang to help get their European campaign back on track.
At the age of 22 years and 301 days, he became the youngest Chelsea player to both score and assist a goal in the same Champions League game.
"I think Reece is just a fantastic player and he's a young player," Potter said in a press conference. "He's developing all the time; he will get better and better as we go.
"I've really enjoyed working with him; he's got a lot to offer. He's fantastic, he can play in any game in the world, he's just tremendous.
"He's so important for us. My job is to try and help him reach his potential and his potential is he could be a Chelsea legend. That's the level that he has, the potential that he has.
"But for that to happen he has to be part of a successful team and that's what we're working towards."
James has scored two goals and provided two assists in nine appearances this season.
