Terzic said the 2014 World Cup winner has now set his sights on lifting the Champions League trophy in the June 1st final against Real Madrid as his last goal for the season.
"I felt that the decision affected Mats and after the discussion (with the Germany coach) he was very disappointed," Terzic told a press conference ahead of their final league match of the season on Saturday against Darmstadt.
"He assured me we will now go for the one goal left."
Hummels, who has been superb in the Champions League this season, had said after their semi-final win over Paris Saint Germain that he had two goals left this season, winning the Champions League and participating at Euro 2024.
But on Thursday his name was not included in Nagelsmann's 27-man squad.
"He told me now we will do everything we can to reach our big goal, the Champions League," Terzic said. "He would have absolutely deserved it to be at the Euros. But it is not our decision."
Dortmund defender Nico Schlotterbeck and striker Niclas Fullkrug were the only Dortmund players to make the preliminary squad for the tournament starting on June 14th in Germany.
"We tried in the past months to help the players reach their personal goals as well as the team goals," Terzic said. "It worked for Nico and Niclas but unfortunately not for Mats."
"He will deal with this situation very professionally and tomorrow and in the Champions League final he will be one of our most important players."