The Uruguayan has scored 14 goals in 10 appearances since returning from his ban, including a four-goal haul in the 5-1 win over Norwich City last week.
"You couldn't write the script," Dalglish told the official Liverpool website. "People glossed over the second goal he scored against Norwich because of the brilliance of the other three, but the technique for the second goal was fantastic as well.
"Luis has been fantastic. He's a great entertainer and he's a humble guy. He's somebody that really enjoys working in training, he is never a problem in training. And he's fantastic on the pitch.
"It's a real joy to see him play sometimes. The goals he has scored have been hugely influential on the position that Liverpool are holding in the league at the moment."
Liverpool travel to Tottenham Hotspur on Sunday.