The Russia coach believes that the attacking midfielder would have been of added value, while he has backed Cristiano Ronaldo to win the Ballon d'Or.
Madrid opted to cash in on the Germany international on deadline day after bringing in Gareth Bale and Isco, but Capello believes the club would have been better off had it held on to the 25-year-old.
"I don’t know what happened with Ozil. I think that he is an extraordinary player and he was very important for Real Madrid," Capello told Onda Cero. "He’s a world-class player. They made a mistake selling him."
The Russia coach then went on to discuss the FIFA Ballon d'Or and stressed that he feels Cristiano Ronaldo is the only player who really deserves it following his heroics for Portugal in the World Cup qualification playoff against Sweden.
"If there is one player who has to win the Ballon d'Or this year, it's Cristiano Ronaldo," he continued. "You have to take into consideration Cristiano Ronaldo’s season and the four goals he scored during what was a very important tie. That’s very difficult."
The 23-man short list for the Ballon d'Or will be reduced to three candidates in early December, with the winner of the prestigious award to be announced on January 13.