After talking with some people, Tennessee apparently didn't think James' return was much of a possibility until this weekend. On Sunday he reached out to some people around the program to explore the feasibility of returning as a walk-on and by Tuesday it was something that was starting to feel real as people looked into the logistics.
After having several workouts with NBA teams including the Portland, Dallas and Milwaukee, as well as attending the G-League combine James didn't get the feedback that made him comfortable staying in the draft. There were several teams, allegedly, who were interested in signing him to a two-way contract, but it doesn't sound like anyone gave him a guarantee that they would take him in the second round.
Had James not used up his (initial) eligibility and stepped away from the team and all team activities he would not have been allowed to return as a walk-on per NCAA rules.