Djokovic was denied entry to the country on arriving for the Australian Open in a row over vaccine rules, and is now appealing against deportation.
The world number one is currently in an immigration detention centre.
"I think everyone is shocked by it," said Murray, who will also play at the tournament, which starts on 17 January.
"I'm going to say two things on it just now. The first thing is that I hope that Novak is OK. I know him well, and I've always had a good relationship with him and I hope that he's OK.
"The second thing: it's really not good for tennis at all and I don't think it's good for anyone involved. I think it's really bad."
Djokovic's court hearing will begin at 10:00 local time (23:00 GMT Sunday) after a bid by the Australian government to delay his appeal against deportation was rejected.
Briton Murray's comments come after Australian player Nick Kyrgios said his country's handling of the dispute had been "really bad".
But Rafael Nadal said Djokovic could be playing "without a problem" if he had wanted to.
Australia's pandemic border rules ban foreigners from entering the country if they are not either double vaccinated or have a medical exemption from having the jabs.
While foreigners can fly in to Australia on a visa applied for online, they must still clear immigration customs on arrival at the airport.
Djokovic - who has said he is opposed to vaccination - was initially given a medical exemption to play in the Australian Open, prompting an outcry from many who have been living under strict Covid rules in the country.
When the 34-year-old arrived in Melbourne, Australia's federal government cancelled his visa. Now Djokovic's lawyers are appealing on the basis that he fulfils the criteria for a vaccine exemption because of a recent coronavirus infection.
The lawyers say this was confirmed by a PCR test on 16 December but the Australian government insists only residents qualify for this exemption.
Photographs on Djokovic's social media
appear to show the player attending events in Belgrade, Serbia's capital, around the time of his positive test.
While he awaits a final decision, Djokovic's lawyers have asked he be moved from the immigration detention hotel where he is being held to "a more suitable place of detention" that would allow him to train before the Australian Open.
Andy Murray has lost four Australian Open finals to Novak Djokovic, most recently in 2016