Vice President Mike Pence confirmed the policy on Monday.
"It's shameful," Hostin said before suggesting that the rainbow flag would provide hope for people who live in countries where homosexuality is punishable by death.
"Imagine how consoling it is if you are a gay person in one of those countries and you see the rainbow flag on a U.S. embassy so that you know you are accepted somewhere in the world and that you are safe somewhere in the world," she said.
"So, it's so important for that symbol to be out there, especially at the embassies," she added. "And the administration should be ashamed of itself for even advising the embassies not to offer that solace to the LGBTQ+ community around the world."
Co-host Meghan McCain said the decision was "weird" given that the United States had gay ambassadors. She seemed to be referring to Richard Grenell, who serves as the U.S. ambassador to Germany and became the highest-ranking openly gay official to serve in a Republican administration."
"We also have gay ambassadors, so I think it's a weird juxtaposition to an ambassador serving and not be able to have a pride flag at the same time," she said. "That seems like a very strange message across the board."
Their comments came as the president came under fire for two Health and Human Services policies that affected individuals who identified as gay or transgender.
Trump appeared to celebrate pride month, tweeting about his administration's fight to decriminalize homosexuality.
Grenell responded by thanking Trump for his "total support from the very beginning."
"This is unacceptable and everyone should join your decriminalization campaign to end this outrage," he tweeted.