The veteran coach told the Brazilian last summer that he had no future with the club but is now willing to hold onto the former Juventus man, provided he gets himself in shape
The Brazil international spent last season on loan at Atletico Madrid and had been hoping to secure a permanent switch to the Vicente Calderon.
However, he has now returned to Wolfsburg and Magath insists that is precisely where Diego will stay unless a club makes a dramatic bid for the player in the next 48 hours or so.
"The questions concerning a deal for Diego will occupy us for another two or three days," the former Bayern Munich boss told Bild. "But if there's nothing by then, he'll stay."
Magath has been critical of Diego's application in training since his return to Germany and the former West Germany international freely admitted after the friendly loss to Shanghai Shenxin that the 27-year-old's fitness remains a cause for concern.
"We have seen again that he has no stamina, even if in footballing terms he is a delight," Magath mused.
Diego, who has been capped 33 times by the Selecao, joined Wolfsburg from Juventus in the summer of 2010 but the former Werder Bremen man's first season back in the Bundesliga was blighted by disciplinary problems.