Keegan, a favourite with the club's fans during his playing days and a successful manager from 1992-97, returned in 2008 hoping to turn the team's fortunes around after a 12th place finish the previous season.
"I thought it could be good, but no, it was a nightmare, an absolute living nightmare," Keegan told Sky Sports.
In his first spell as Newcastle manager, Keegan took the Magpies back to the Premier League and they finished second behind Manchester United in 1996.
During his second period in charge, however, Keegan criticised the Newcastle board for not giving him enough financial backing to break into the top four.
He was also angered by his complete lack of involvement in the loan signing of Uruguayan midfielder Ignacio Gonzalez.
The former England manager originally said he had left Newcastle voluntarily but later took the club and their owners to court for unfair dismissal.
Although criticised by some fans for the decision, he said he did not see it as being a move against Newcastle.
"I saw it as (owner) Mike Ashley, Dennis Wise, a guy called Jimenez and Derek Llambias," he said.
Keegan's dispute with the club was resolved in 2009 when he was awarded 2 million pounds by the Premier League's arbitration tribunal.
Keegan, 62, who has not managed another club since leaving Newcastle, refused to rule out a return to St James' Park, although he made it clear he would only consider it if Ashley left.
"Until they leave that football club, it has no interest for me," he said. "They are not that football club. They are just the custodians who are in for a few years. It might be five, 10 or six. But Newcastle United will go on after Mike Ashley."