Neymar, 33, has not featured for Brazil in two years, with injuries hampering his ability to perform consistently since returning to Santos last year after a stint in Saudi Arabia.
Ancelotti, speaking ahead of Brazil's friendly against Japan in Tokyo on Tuesday, praised Neymar's talent but stressed the importance of his physical condition.
"Neymar can play at his highest level in this team without any problems," the Italian told reporters. "When he is in good physical condition, he has the quality to play not only in Brazil but in any team in the world because of his talent."
The former Barcelona and Paris Saint-Germain forward last wore the famous yellow jersey in October 2023, when he suffered serious knee ligament damage that has plagued comeback attempts.
Brazil head into Tuesday's match buoyed by an emphatic 5-0 victory over South Korea last Friday, a performance that showcased their ability to entertain with the "beautiful game."
However, Ancelotti emphasised that balance and teamwork remain paramount.
"The Brazilian national team wants to play beautiful football and can play it, yes, but it depends on what you mean by beautiful game," he said.
"Of course, the players have individual quality and commitment. You have to play beautifully with the ball and also without the ball, which is an important aspect."
The Italian, who took over in May after a tricky World Cup qualifying campaign, has prioritised attitude and adaptability in the limited time before the tournament in North America.
Since taking charge, Ancelotti has overseen three wins, a draw and one defeat. Under him Brazil have become more defensively solid, conceding only one goal — a penalty against Bolivia in the high altitude of El Alto — while scoring nine.
On Friday in Seoul, the coach included four forwards in his starting eleven — Vinicius Jr, Rodrygo, Matheus Cunha and teenager Estevao — and Brazil overwhelmed the home side.
Tuesday's clash with Japan provides another opportunity for Ancelotti to refine his tactical approach.
Reflecting on the team's progress, he added: "Commitment and teamwork are essential. Playing beautifully is important, but the most important thing is to win."