"Dier can, if necessary, step back and play there. That was his original position," Hodgson, who has till May 31 to name his final squad, told British media.
"Any time you ask someone to move where they have not necessarily been playing on a regular basis is a bit of an ask.
"Take the last World Cup when the Germans had two centre-backs who played every game. We have at least three, and potentially four. How much cover can you actually take?"
With the retirement of experienced central defenders like John Terry, Rio Ferdinand and Sol Campbell in recent years, Hodgson admitted there was a shortage of quality defenders in England, particularly left-sided centre backs.
"I wouldn't call it a crisis... I'm not going to disagree that we haven't got those resources at our disposal, albeit I do believe Cahill, Smalling and Stones are good centre-backs," Hodgson, 68, said.
"Why are we not producing more centre-backs is a good question. It is something that we at the FA should think about.
"We should really start targeting certain areas and left-sided centre-backs in particular because there are no real left-sided centre-backs around in the way there are in a lot of countries."
Hodgson has urged the players to take inspiration from Leicester City's remarkable Premier League triumph after starting the season as 5,000-1 outsiders.
"We've seen this year, the example with Leicester... It's happened in the past. Nobody expected Denmark to win it in '92; nobody expected Greece to win the Euros as well; no one expected Leicester to win the league," Hodgson said.
"If we really play well... which we've shown in quite a few games recently, who knows where that will lead us?"
England face Russia, Slovakia and Wales in Group B of the 24-team tournament in France that starts on June 10.
(Reporting by Shravanth Vijayakumar in Bengaluru; editing by Sudipto Ganguly)
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