The England goalkeeper sat out seven Premier League games between November and December after a start to the season fraught with errors for club and country.
However, after playing second fiddle to Costel Pantilimon, Hart has returned to the team for City's last three matches and impressed.
Having featured in wins over Fulham and Liverpool, the 26-year-old excelled in Saturday's 1-0 win over Crystal Palace, denying Joel Ward a stunning goal with an equally impressive save.
Hart also showed a steely determination to finish the game after picking up a nasty cut to his left eye in a first-half collision with Palace striker Cameron Jerome.
"It was good for him to have a rest, he needed it," Pellegrini said. "And now he's playing at his normal levels.
"I don't think he has less confidence, he always knew what we think about him. He always works hard and he was always confident he would return to his position."
The Chilean also brushed off any fears over the injury sustained by his keeper, claiming Hart was immediately cleared by City's medical team to continue, despite sustaining a black eye.
He explained: "It was a problem but it wasn't serious and the doctor said it was OK."
