Walcott was well under par during England's international friendly against Italy in Turin and was subsequently substituted by Everton's Ross Barkley early on in the second half.
Walcott has also been in and out of Arsenal's starting XI over the past couple of weeks.
"Theo wants to do well, he is sensitive and I am a bit concerned about the damage that [Italy] game can have on his mind," Wenger told PA Sport. "Theo's strength is the quality of his movements, he wants to go to get on the end of things, he is not a guy who provides.
"It was a complicated game for the [England] strikers because Italy defended with three centre-backs, two players in front of the two centre-backs and England played all in there so there was no room, no space.
"I don't think it was the intention of Roy Hodgson to play him there [as a number 10]. It is maybe Rooney who took the initiative during the game to play higher up and told Theo to drop back.
"I didn't see Roy Hodgson standing up to say 'Walcott, you come and play in midfield and Rooney you go up front'. That is an initiative they took on the pitch."
However, even though the 26-year-old is struggling to regain his form, Wenger is confident that he will be back to his best in no time at all.
"Theo is not fragile mentally, he is strong mentally, but he is disappointed because when you come back you always think you are ready," Wenger said. "I don't worry about Theo because he is not completely there yet and I told you that a few times he has been out for a year with a very bad injury and he is coming back."
Wenger also hinted that Walcott may start for Arsenal during their highly anticipated Premier League match against Liverpool on Saturday.
"I think he is strong enough. I will see what state of mind he is in," he said. "We always have a word, if it is a positive experience or a negative experience, you ask how did it go. We always speak about the last game."