Dembele has featured in 32 of Tottenham's 34 matches this season and the Belgian midfielder has impressed Sherwood, who succeeded Andre Villas-Boas as head coach last month.
The 26-year-old has scored just four goals in 74 appearances for Spurs, but Sherwood has backed him to improve on that figure.
He told Tottenham's official website: "Mousa's a nightmare to play against because he can drop his shoulder and leave you on your backside!
"Opponents can't get the better of him physically either. He's such a strong man; he gets away from players; he's a real top talent.
"We're trying to get him further forward to play in and around the penalty area because he has the capability of creating and perhaps scoring more goals. We're getting him into the areas to achieve that.
"He's very well respected within the group. The lads know the quality he possesses and treat him with the respect he deserves."
Dembele joined Tottenham from Fulham in August 2012, having previously impressed for Willem II and AZ in the Eredivisie.
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