The ECB confirmed on Tuesday that Pietersen will no longer be considered for selection following reports that he caused problems in the dressing room during the tour of Australia this winter.
"I really think it's sad we won't see Kevin Pietersen playing for England again," Vaughan told BBC Radio 5 live.
"When you have a maverick you have to keep talking to them, telling them that all the people here at the ground are here to watch them. You try to big them up.
"I'd love to think that management takes place, but I clearly think they haven't because he's just been distanced. You could see he was going doolally. He could have been managed in a better way."
Vaughan was England's captain when Pietersen made his Test debut in 2005.