The Blues recruited a plethora of talent over the summer as the Portuguese manager looked to bolster his squad and increase competition for places at Stamford Bridge.
Mourinho has admitted he remains unsure on his regular starting XI despite beating Fulham 2-0 in the Premier League on Saturday night.
However, Cahill believes Mourinho's hard-line approach will reap rewards as each player strives to find a place in the starting XI.
"I think with the squad being so big, you feel if you slip up once, you might not get an opportunity for a while," he said.
"It keeps you on your game, no one is complacent by any means. I think that is a good thing. If you don't perform, then you will be out.
"It's never easy when you have got a squad of international players. Also obviously with the manager, if you slip up, you will be out of the side. It is as simple as that.
"He has his own reasons for things and there is great competition."
Cahill's remarks come in the aftermath of Mourinho's controversial decision to axe Juan Mata and David Luiz from the Blues' match-day squad at the weekend and the centre-back explained the manager has set standards.
"He expects certain things from players," the 27-year-old added. "That is the way he manages, I think it is great and I'm sure it will rub off on the other lads. I've really enjoyed it.
"Obviously there is a style that he wants to play, that he demands from certain players in certain positions.
"And I think early on in the season he was getting that, last couple of games maybe not. He's let us know and we work on it in training."