I think you may be asking two separate questions:
1) Did lute players in historical times use rest stroke.
2) Is it appropriate to use rest strokes when playing Dowland on the guitar.
In both cases the answer is debatable:
1) The lute was played over a period of more than 300 years, during which time both the form of the instrument and the techniques used in playing evolved. What we know of the various different types of lute technique comes from the very limited instructional material of the period, from written descriptions of lute players and from iconography (paintings and sculptures). As Michael.N. suggests there is some evidence that thumb rest stroke may have been used (one written account I know of that, if I remember correctly, was Thomas Mace in the 17th century) and no evidence of finger rest strokes. Added to the fact that the lute is very lightly strung and (certainly in the case of Dowland) the style of much of the music suggests a light touch and the way the string is plucked (stroking at an angle across paired strings) doesn't lend itself easily to rest stroke, the general opinion today is that the lute should be played using the equivalent of free stroke.
2) Should one play Dowland on the guitar in such a way as to imitate the sound of the lute? If so then free stroke should be used. If you are new to Dowland then the best advice is probably to stick to free stroke. However the wider question is whether, when transferring music to a different instrument it is valid to reinterpret the music in a way that suits the qualities of the new instrument. A player who decides it appropriate to do this might perhaps consider the judicious use of rest stroke in some of the music.
Eric from GuitarLoot
Renaissance and Baroque freak; classical guitars by Lester Backshall (2008), Ramirez (Guitarra del Tiempo 2017),
Yamaha (SLG 130NW silent classical guitar 2014).