Ex-Argentina international Caballero spent last season as third-choice at the Premier League club behind Mendy and Kepa Arrizabalaga.
“I believe strongly that Ed Mendy is the best goalkeeper [in the world] – last year and at the moment this year he is the best,” the 40-year-old told BBC Radio 5 live.
Mendy arrived at Chelsea in September last year and soon established himself as the first-choice, going on to help the Blues win the Champions League in his first season.
Caballero, who is now a free agent and looking for a new club, says that it was immediately obvious to him that Mendy was a world-class goalkeeper.
“As he arrived last season in training I saw an amazingly talented goalkeeper in terms of power, in terms of speed – he is so fast when diving,” he explained.
“He has very long arms and everyone wants that as a goalkeeper. He is showing in every single game that he is calm and he is improving with his feet, he is playing very well in the build-up.
“He is winning points for Chelsea – not just last season but this season too. He is enjoying performing at this level and keeping clean sheets.”
During their time together Caballero, who also played for Manchester City, challenged his Senegalese club-mate to be the best consistently.
“I spoke with him last season and I told him ‘For me you are the best goalkeeper at the moment but you have to keep doing it for longer – next season and next season and next season’,” he explained.
“‘Because you have only shown for one season what you are able to do’ – and he is doing really well.”
Mendy’s performances for club and country have seen him nominated for the Fifa Best Men’s Goalkeeper award for 2021.
The other nominees are Alisson Becker (Brazil/Liverpool), Gianluigi Donnarumma (Italy/AC Milan/Paris Saint-Germain), Manuel Neuer (Germany/Bayern Munich) and Kasper Schmeichel (Denmark/Leicester City).