I've used 505 for smaller applique pieces and to hold labels in place til I hand stitch them down.
So with my limited experience, I'd say, why not?

Try it on a sample (make a mug rug or something simple!) and see if you like how it goes.

I use 505 for emb and have for years. I cut both ends out of cans [gallon, quart, pint, or Ritz’s cracker box for large ect.]. Then I hoop my cut or tear away backing, set a can inside the hoop and spray. My hoop stays clean, no over spray, then lay your emb project on top and re-hoop.<o:p></o:p>
You can draw you placement line, spray, then place fabric on top and hoop.<o:p></o:p>
I also keep a large cardboard box [cut down sides] and spray inside for odd size appliqué projects.<o:p></o:p>

I was in Dollar General and checking thru their school supplies for sewing/quilting supplies (as mentioned in another thread here). I saw the Elmer's Spray On Glue and almost bought some but I noticed that is said "repositionable for a while and then becomes permanent". I wondered about that part. The print on the back of the can was way too tiny for me to see w/o my magnifying glass so don't know if it would be good on fabric. I didn't get any but may go back later and get some. I do know that you can use a cut-a-way stabilizer in whatever weight works best for your fabric, adhere it to the applique with 505 and then stitch around it and cut. The cut-a-way is stable once it's stitched. This is the way I do applique with my embroidery machine.

using the spray will work, perhaps find a spray with will not wash out, read the labels. Depending on what I am doing, lets say a baby quilt (lots of washing) to a wall hanging (probably no washing) will also determine the method used. Baby Quilt I sould window cut the webbing, wall hanging I would use my Elmers craft spray (cheap)