The former Owls winger believes a lack of expectation can help his old side.
Speaking to BBC Radio 5 Live on Friday morning (c. 08:50), the former Wednesday and England winger suggested a lack of expectation at Hillsborough could work in his old club's favour in their semi-final tie against third-place Brighton & Hove Albion.
The Premier League founder members have spent 16 seasons outside the top flight, but investment from Thai businessman Dejphon Chansiri, coupled with a busy summer of recruitment, has seen the Owls' fortunes transformed this season.
"I think they’ve got a very good chance," Waddle told 5 Live. "The plan was two years really to aim for the play-offs and build a team which could compete to get in the Premier League so they’re probably a year in advance.
"I just think that when you’re the sixth team and nobody really thought that Sheffield Wednesday would get in the play-offs, expectations are now high. If they were to lose, the fans would be disappointed but they’d probably say what a fantastic season they’ve had.
"Brighton have been there all year - could have went up automatic. Sheffield Wednesday for me have got nothing to lose so it will make them relaxed."
Waddle, a European Cup finalist with Marseille, played for Wednesday during their early '90s heyday, in which they regularly competed in the top half of the Premier League table and were runners-up in both domestic cups - prompting him to be named Football Writers' Association's Footballer of the Year in 1993.
However, the Owls went into decline after the 55-year-old's departure in 1996 and have twice been down to League One since they dropped out of the top flight four years later.
Wednesday's sixth-placed finish this season is their best in 16 attempts.