The German is in exile at the club, as he is not involved in the club's Premier League or Europa League squads.
He does not train with the first team either, despite being available and still receiving his £350,000 per week wages.
Deeney believes Ozil has done nothing wrong, even though he feels the player's career at Arsenal is over.
"I think his career at Arsenal is done, personally," Deeney told talkSPORT.
"I don't see how he can come back from it, especially when you're seeing him so much more active on social media, I think he's mentally checked out as well.
"It's a shame. I said last week, and I got battered for it, that he's one of the best players I've played against.
"I think he's very good and I think [Pierre-Emerick] Aubameyang and players like that would thrive off someone like that slipping balls in - he sees passes others can't.
"[Cristiano] Ronaldo said he was the second best player in Spain after himself.
"What people don't see is what happens behind closed doors. There's obviously an issue with his wages and he's in the last year of his contract.
"They may have said something to the effect of 'We want you to take a pay cut.' But as player you think 'Why? I didn't force you, I didn't put a gun to your head and say offer me this money.'
"He hasn't done anything wrong. They're not fining him for being late or refusing to play, it's coming down to an issue of style of play – does he work hard enough for the new formation – and money.
"I'm sure at a later date he will talk about it and everyone will think 'Ah, yeah, maybe it was a bit harsh.' But, sadly, people don't see what happens behind closed doors, they only see the performance on Saturday.
"Something has definitely happened because he's fallen off the face of the earth and he's not even made the 25-man squad.
"You could make the argument, is that poor management? Because having him just in the 25 at least would allow you to put him in in this current situation."