"In 2016 the Champions League final is in Milan... there's no reason we can't dream," Berlusconi said in an interview with Gazzetta dello Sport Monday.
Inzaghi, who took over from Dutchman Clarence Seedorf in the summer, won two league titles and two Champions League titles as a striker with Milan during his spell at the club in 2001-2012.
But in recent years the Rossoneri have slid dramatically as Italian football continues to reel from the effects of a wider economic crisis hitting the country.
Their last league title came under the guidance of Massimiliano Allegri in 2011, but the following season the spine of his squad was ripped out following an exodus of the club's top players.
Milan failed to qualify for Europe this season after finishing eighth in Serie A and Berlusconi has faced criticism for failing to invest in key players to rival Juventus, Roma and Napoli on the home front.
Legendary defender Paolo Maldini, now retired, recently added to criticism when he claimed Milan's current squad is "not built to win".
But Berlusconi hit back: "It's pertinent to remember that we have a very high salary bill. This year we have to invest 65 million euros into the club... it's an almost heroic effort we've had to make."
Berlusconi became AC Milan owner in February 1986 and thanks to the acquisition of big name stars has overseen the club's most successful period.
The likes of Marco Van Basten, Ruud Gullit, Frank Rijkaard, Maldini and Franco Baresi helped lead Milan to a whopping 28 titles including eight Serie A crowns and five Champions League trophies.
But with Italian football on the whole trailing behind big-spending Bayern, Real, Barcelona, Chelsea and the two Manchester giants, the prospect of a revival any time soon looks unlikely.
Juventus have won the league title the past three seasons but last made a dent in the Champions League in 2013 when they were eliminated in the quarter-finals by Bayern.
Sales from Milan's season tickets are also reportedly on the wane, but Berlusconi was dismissive.
"I'm sorry, but this is not just a Milan problem. Television is ever more invasive, now there is a disproportionate (number of) television channels," said Berlusconi, whose media company Mediaset holds partial rights to Serie A games.
"When you sit in front of the television, you can watch everything these days."
Berlusconi admitted the club was to blame for the departure of big name stars like Zlatan Ibrahimovic, Thiago Silva, Clarence Seedorf among others in the summer of 2012.
But he said fans had to be patient and believe Inzaghi can help reap rich rewards in the coming seasons.
"In recent years some big names left the club, and some of that was our fault. This year, I've taken an active interest in recruiting," added Berlusconi.
"We've invested more (in players) than Juventus and Roma. Our objective is to get back into Europe as soon as possible.
"Success in football comes in waves and so fans have to be patient. We will be protagonists in Europe again. In 2016 the Champions League final is in Milan.. there's no reason we can't dream."