Michael Cheika's Australia wrapped up their worst test season in 60 years with a thumping defeat by England at Twickenham on Saturday, leaving fans pessimistic about their chances at next year's World Cup in Japan.
Players based at overseas teams are ineligible for Wallabies selection unless they have played 60 tests under the so-called "Giteau rule", which was introduced in 2015.
Dwyer said Australia could ill-afford to limit their playing pool given the lack of depth in domestic rugby.
"We're not that well off in depth that we can afford to lose top line players," Dwyer, who guided the Wallabies to their first World Cup triumph in 1991, told Australian Associated Press.
"We probably need to look hard at who we can pick who is not playing in Australia, I know at the moment we've got the 60-test rule.
"For me, we can change that any time we want to."
A number of capped Wallabies, including Saracens lock Will Skelton and Japan-based loose forward Sean McMahon, are plying their trade overseas and are ineligible for selection.
Dwyer felt such fears were overblown.
"There's not a bottomless pit where (overseas teams) can take every player in Australia -- and are we any worse off than say people like Argentina?" Dwyer said.
"I think we need to make an environment available for players in Australia which will make them want to play here, because it offers them their best chance of becoming a better player."
"I look at all of the players who have played in the UK in recent years, or some who are still playing there, and you look at their condition now compared with their condition when they were playing in Australia," he said.
"The perfect example is Will Skelton. He doesn't look like the same person as he was when he played for the Waratahs. That's no good, that's an indictment on us.
"I think we need to have a really hard look at how our players are being prepared here and not just hand them over to the Wallabies with a week or a fortnight before the test series starts and say, 'over to you, they're all yours now.'"
(Writing by Ian Ransom; Editing by Peter Rutherford)
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