Magath and Holtby worked together in the past at Bundesliga side Schalke, with the 23-year-old being sent out on loan twice, and it is clear the pair have failed to gel again in west London.
Holtby has scored just one goal in 13 appearances for the Cottagers and Magath has substituted him in his last two games, after 34 minutes at Stoke and at half-time against Hull, the game which saw them consigned to the Sky Bet Championship.
"Lewis is a very skilful and a nice player but he is not a fighter - I think it was not the right move for him," Magath said of the player signed by previous Fulham manager Rene Meulensteen in January.
"I think he has put too much pressure on himself.
"Against Hull it was not him who was playing and against Stoke it was even worse.
"It was too early, he came here for a chance to go to the World Cup but after a few weeks it was clear it wasn't working. It was not the right decision for him."
Magath pledged his future to the club last week and he is now questioning whether he was too soft on his players - he came to England with a reputation as a hard task master.
He added: "The players told me they cannot fight, I don't know why. They cannot fight, they haven't learned it.
"Have I been too soft on them? Maybe. At the end of the day you can't find one reason and blame that for relegation.
"I didn't take on something that could be cured easily, we were bottom of the table and things were very messed up."