The 24-year-old, who is part of England's 26-man provisional squad for Euro 2016, has been linked with a move away from St. James' Park by the local media.
"It doesn't impact on his (international) career in any particular way," Hodgson said.
"But for him to be in the (England) team he needs to be the Townsend we've seen in the past."
Townsend signed for Newcastle from Tottenham Hotspur in January, after making three league appearances for the London side last season, and falling out of favour with manager Mauricio Pochettino.
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"I picked him when he wasn't playing for any senior team at all-- he was just sitting on the bench or in the reserves at Tottenham Hotspur and I've done that for a few players," Hodgson said.
The England manager is set to name his 23-man playing squad by Tuesday as he hopes to lead the country to their first major honour since the 1966 World Cup.
England, who play Australia in a warm up game on Friday, face Russia, Slovakia and Wales in Group B of the 24-team tournament that starts on June 10 in France.
(Reporting by Nivedita Shankar in Bengaluru; Editing by Amlan Chakraborty)
