The 36-year-old four-time Olympic gold medallist lost out to Jason Kenny for the right to be Team GB's sole representative in the individual sprint.
But the Edinburgh-born cyclist says he will put that disappointment to one side - admitting that Kenny was the right choice - and will get on with the task of achieving his dream of a medal in front of home crowd.
"It was a big disappointment at the time," said Hoy, who was voted to be flag bearer by the majority of his Team GB peers.
"We found out a few weeks ago or near a month ago. It was a disappointment as my target was to defend all three titles, but I couldn't be too disappointed because I gave my best.
"It went to the right person - Jason has ridden incredibly well. He'll do a job and if he wins gold, it goes to my team. I'll just get right into the team sprint and the Keirin.
"This is the last box to tick and I've achieved everything I could ever could in cycling, but not a gold medal in front of a home crowd and that would be unbelievable.
"You try not to think about it too much, and whatever happens, happens."
Cycling is expected to provide a number of medal contenders on the track and the road, including Hoy, and Tour de France heroes Bradley Wiggins and Mark Cavendish.
But the Scot believes that the team will just enjoy the experience, and he stands by his assertion that Wiggins' win is Britain's greatest sporting achievement.
He said: "We're certainly buoyed by the success of road team. I can't think of anyone who can say they have achieved more for one sport.
"Absolutely I stand by that it is the best achievement in British sport. It could have gone wrong - he could have been injured or suffered illness, but the way Bradley dominated was brilliant for British sport.
"I don't think the team is feeling the pressure. You put a bit of pressure on yourself because you've devoted so much time to this one event
"We're just going to enjoy the experience - you have to enjoy it and you tend to perform better if they do. With that, any medals that come your way are a nice welcome bonus."
Hoy admitted that he was left overwhelmed after it was announced that he was being given the honour of carrying the flag at the opening ceremony.
"I'm absolutely delighted and quite blown away by it all," said Hoy.
"To have such a huge honour bestowed upon you and to lead your team out at a home Olympics is something that's incredibly special.
"I'm still in shock - I only heard about it a number of hours ago, so it's all sinking in and I'm very much looking forward to Friday and carrying the flag.
"To have the athletes vote for you and put you forward is even more special, particularly when you see the list of other nominees, who are all icons."