The former Real Madrid and Brazil coach vented his fury on Instagram, sparing no criticism of Ancelotti's handling of the tournament.
"If Ancelotti were a Brazilian coach, he'd be finished. That's the harsh reality," he wrote, before adding: "Ancelotti got it wrong, and got it very wrong at this World Cup!"
Luxemburgo, who managed Real Madrid between 2004 and 2005 and the Brazil national team around the turn of the millennium, said he shared the frustration of the entire country.
"I'm furious! Just like every other Brazilian, just like you!" he wrote, arguing that Ancelotti's selection choices and in-game reading of the match cost Brazil a shot at a sixth world title.
He went on to accuse the Brazilian media of double standards when it comes to foreign coaches.
"If the coach were Brazilian, the press would already be calling for his head, running special programmes and declaring the project a failure. With a foreigner, there always seems to be an excuse, a way of softening reality — a patience they never had with our own," he said.
Luxemburgo called for an end to what he described as a cultural inferiority complex within Brazilian football.
"Enough of this syndrome where everything from abroad is automatically considered better," he wrote, insisting the national game "needs more Brazil" — more identity, more trust in homegrown talent and greater respect for domestic coaches.
He closed his post with an impassioned defence of what football means to Brazilians.
"Let them talk about the Premier League, the Champions League or whatever they want. For me, football is still that historic shirt, the vibrant energy of the stands, the jokes, the painted streets, the kids watching their country become champions for the first time, and above all the passion that only a Brazilian truly understands," he wrote.
"Enough of this shame. This is Brazil. And it always will be."