The attacking midfielder impressed with a string of fine performances in the opening stages of the 2013-14 campaign, but has been struggling to replicate that form since Madrid moved away from its 4-2-3-1 setup.
Nevertheless, Ancelotti has stressed that there is still room for Isco as he can also feature in a three-man midfield or on the right wing.
"The 4-3-3 system gives us more balance because the defensive job done by the three midfielders is very good and we will keep using this system," Ancelotti said at a press conference. "It is true that this change makes it more difficult for Isco, but I think he can play in [Angel] Di María’s or [Luka] Modric’s position as well.
"Plus I have not completely forgotten about the old system and we may still use it from time to time."
Isco, who joined Madrid from Malaga at the start of the season, has scored six goals in 16 appearances for los Blancos in La Liga.