"Shevchenko will decide to go play for another team," said the Italian, who coached the Ukraine captain last season at AC Milan where the striker was on loan from Chelsea.
"He will take this decision; it is not our problem to choose the team right for him," Ancelotti said after a training session for Saturday's Premier League game against promoted Burnley at Stamford Bridge.
"I spoke with Shevchenko and he would like to play with continuity here. For me it is difficult to give him this possibility and I think that he has taken the right decision."
"I've said it many times it was my dream to bring Andriy," Dynamo president Ihor Surkis was quoted as saying by the Segodnya newspaper. "There's a good chance that he will join us but nothing has been agreed just yet."
Shevchenko, who joined Chelsea from Milan for a club record 30 million pounds ($48.86 million) in 2006 in a deal smoothed by Chelsea's Russian owner Roman Abramovich, never settled at the London club and scored only nine league goals in two seasons.
He was in danger of being left out of Chelsea's Champions League squad, which Ancelotti must name on Tuesday, but the Italian said that had nothing to do with Shevchenko's decision.
"Shevchenko did not have the possibility to play regularly. He has taken the decision only for this."
They will have to do without top striker Didier Drogba for the first three games of the competition while he serves a ban for unsportsmanlike conduct following the side's semi-final elimination by Barcelona last season.
Ancelotti said Porto and Atletico would be tough. Porto had a strong European pedigree and Atletico would be difficult to play in Madrid but he added: "Probably Porto, Atletico and Apoel will have more problems playing Chelsea."
"Joe Cole started to train with us on Tuesday. With him we have to stay calm; we have to put him in the squad at the right time and now is not the right time. After the international game we can be more precise," Ancelotti said.
Ancelotti added that Zhirkov, Chelsea's only significant signing of the transfer window, could be
