Adelaide star Rankine has become the sixth AFL-listed player suspended for a homophobic slur against an opponent in the past 16 months.
The Crows livewire will only play again this season if ladder-leading Adelaide lose a qualifying final but then advance to the grand final, when Rankine would be available for selection.
Adelaide play North Melbourne on Saturday in the last home-and-away round and will then host two finals.
AFL chief executive Dillon described Rankine's behaviour as unacceptable, while attempting to defend the league's decision to ban Rankine for four games.
"It was a compelling medical submission but I will not go into the detail," Dillon told reporters, noting he is yet to speak to Rankine.
"It is a significant sanction.
"We had an investigation ... it is behaviour that is not acceptable. Izak Rankine has admitted that, Adelaide Crows have made a statement on that, that's what's important."
The league did not treat missing finals as any different to being sidelined from regular-season matches.
"A game is a game. That's what we took into account," Dillon said.
Rankine directed a homophobic slur to an unnamed Collingwood opponent in Adelaide's three-point win last Saturday night.
"I regret using the word and I am deeply sorry for doing so," Rankine said in a statement issued by the Crows.
"That type of language has no place in football or in the community.
"It was a mistake and I have apologised to the Collingwood player. And what happened does not reflect my values or those of the club.
"I'm committed to educating myself and being better."
The AFL's general counsel Stephen Meade noted in the statement announcing the four-game ban that "Izak has said he knew it was not acceptable" and "Adelaide have said they know it is not acceptable".
"Homophobia has no place in football, Meade said.
"The suspension is significant but stamping out vilification in our game is incredibly important.
"We recognise this is a challenging time for the players and clubs involved and appropriate support has been offered.
"We know people in the LGBTQI+ community and allies hurt when an incident like this happens.
"One incident of this nature is too many and the fact there have been multiple this year shows we still have more work to do and we are committed to that."
Meade said Adelaide's response included compelling medical submissions but, like Dillon, did not elaborate.
"The language used was offensive, hurtful and highly inappropriate," Meade said.
"Our players have a very clear understanding of what is acceptable on the football field.
"Importantly, in this instance it was called out by players and acknowledged by Izak himself as wrong - and that reflects the standards we expect and demand in our game."
Adelaide chief executive Tim Silvers said the club was "frustrated and disappointed" in Rankine.
"However player welfare is always a priority and we will provide Izak with the appropriate support and education," Silvers said in a statement.
Last month, West Coast's Jack Graham was banned four games for a homophobic remark to a GWS player.
In April last year, Port Adelaide's Jeremy Finlayson was suspended for three games and, the following month, Gold Coast's Wil Powell was suspended five matches, both for directing homophobic slurs at opponents.
Two VFL players have also been banned for the same offence.
Sydney defender Riak Andrew last month was suspended for five matches for an anti-gay slur while playing in a reserves game against North Melbourne.
And in July last year, St Kilda's Lance Collard was banned six games for homophobic comments while playing in the VFL for Sandringham against Williamstown.
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