Former Manchester United striker Forlan has re-invented himself in Spain after a frustrating time at Old Trafford. He managed just 17 goals in 96 appearances after a £7.5million move from Independiente in 2002 and took 30 matches to get off the mark.
However, Forlan arrives at the Reebok Stadium - where he made his United debut - in buoyant mood after scoring both Atletico's goals in Sunday's Primera Liga victory against Racing Santander.
Cahill said: "Forlan had a difficult time at Manchester United but he seems to have picked up a lot since then.
"Confidence is a big thing, especially for a striker and he is back banging the goals in. He is one player we will have to keep an eye on and do a job on. But it is good to test yourself against a player like him."
Cahill believes Bolton can bounce back in this first leg of the last 16 after the home defeat to Portsmouth.
He said: "I felt terrible after the game and still cannot understand how we managed to lose it.
"We gave an excellent performance and if we keep producing the chances some team is going to get a good beating. Certainly, we are looking forward to meeting Atletico - it is the biggest game of my career.
"It is an experience we should enjoy as there will be a sell-out crowd and that will be massive for us.
"If we can keep a clean sheet then we will have a great chance in the second leg."