The former Manchester United defender has claimed that the Team GB coach was right to snub his ex-team-mate and base his squad selection solely on footballing considerations
The LA Galaxy midfielder had played a prominent role in promoting London's bid for the Games and had been tipped to captain the side this summer.
But Pearce opted to select Ryan Giggs, Craig Bellamy and Micah Richards as his three over-age players, leaving the former England skipper disappointed.
"We're talking about Stuart Pearce and David Beckham, two brilliant pros, who wouldn't look at anything other than football reasons," Neville told reporters.
"I've spoken to David and he's disappointed. He wanted to be part of it. It was a dream of his. This would have been a great occasion for him.
"I'm disappointed for him as a friend, but professionally I can understand that there are difficult decisions to be made.
"There will be people who will argue that David does deserve a position in the GB team for helping to bring the Games here. But I think David wanted to be selected on his own merits, for his talent, skill and ability.
"He goes beyond football in his reach around the world and selection for a football team is different from the ambassadorial role he has."
Neville, who is now part of Roy Hodgson's England backroom staff, is looking forward to seeing Giggs, another former Manchester United team-mate, lead Team GB out at the tournament.
"He's an absolutely brilliant player who I'm sure will light up these Olympics," he enthused. "But he'll only think it's a great moment if GB win.
"The young players who are in the squad are marvelling at him every day and saying 'Wow, how does he do what he does at 38?' It's staggering, really.
"He's got incredible ability and he'll be a great example in terms of how to train and go about things.
"I've spoken to Ryan and he's ecstatic at the opportunity that's been presented to him at this late stage of his career."