The Argentina forward missed Atletico's opening league victory over Malaga on Wednesday as he continued to build his fitness following his post-World Cup break.
Alvarez has also been at the centre of transfer speculation after reportedly seeking a move away from Atletico.
The Spanish club rejected approaches from both Barcelona and Real Madrid and made it clear they did not want to sell one of their key forwards.
Barcelona coach Hansi Flick was asked again on Saturday whether the Spanish champions had ended their interest in Alvarez, but he refused to discuss a player contracted to another club.
Simeone confirmed on Saturday that Alvarez is now ready to return to the squad.
"Yes, he's going to be included in the squad list tomorrow and he's doing better," Simeone told reporters.
"Obviously, he's still getting up to speed, like all his teammates."
Alvarez could face a hostile reception from some Atletico supporters after his attempts to leave the club. Fans directed insulting chants at the striker during the win over Malaga.
Simeone, however, made it clear that he would not join in with the criticism and remains fully behind the forward.
"Obviously I don't share in any insults or slights. Let that be absolutely clear," the Atletico coach said.
"Julian is a hugely important player for achieving the goals we have as a team. We need him, we're going to look after him.
"That's from a sporting standpoint, and we're going to stand by him. Why? Because he's our player, and as long as there are players at Atletico Madrid who are mine, I'm going to look after them."
Alvarez's return gives Simeone another major attacking option as Atletico look to build on their winning start to the campaign.