The youngster was rated as one of the best prospects in the league last season, despite his limited game time.
Many expected him to feature more this term, but chances have not been forthcoming.
And Waddle is not happy about how the 19-year-old's career is progressing.
"Where is Phil Foden? It is a mystery to me," Waddle told BBC Sport.
"If he was playing regularly for City in the Premier League, then he would be doing the same for England. I have no doubt about that. At 19, he is good enough to do both - he is that special. As well as his ability on the ball, what I really like about Foden is that he gets in the box.
"But he appears to be stuck on the fringes of City's first team and we are left to wonder why he is not getting any game time this season while his manager Pep Guardiola tells everyone he is the most talented player he has ever seen.
"It does not add up. I am not saying that Foden must leave City, far from it. But I am thinking of his development, and something needs to change.
"He needs to be playing top-level football now, and he should be asking Guardiola why he isn't giving him any if he rates him so highly.
"If I were him, I would be kicking Guardiola's door down, saying: 'Look, I need to play because I am missing out on so many opportunities here.'"