The midfielder began the season in sparkling form in a 4-2-3-1 system, but a change to a 4-3-3 formation means the Spaniard has had to adapt to a different role
The Spain midfielder began the season strongly in a 4-2-3-1 system, but the decision to change to a 4-3-3 formation has seen the 21-year-old struggle for regular starts in recent weeks.
However, Ancelotti is convinced Isco can adapt his game and become a success in either a midfield role or as a more orthodox wide man.
"Maybe now Isco is not happy," said the Italian.
"I do not like a happy player if he does not play. He has been penalised slightly (by the change in formation), but hopefully at the end of the season we can say he was an important part of the team.
"He did very well at first and played. I have absolutely no doubt about his talents or his future - but now it is normal for him to be unhappy.
"I'm not here to work for one player or another, I'm here to work for the greater good of Real Madrid."
Isco has scored six goals in 17 Liga appearances this season after joining the club from Malaga over the summer.