Warda Jawad was told she could not pass a security check as an army psychologist because she was born in Iraq, and had spent several months studying medicine in Oman.
Defence later said it would reopen her application, but it has not been in touch for nearly three months.
Dame Susan said Ms Jawad was dragged along for the entire application process, during which time New Zealand Defence Force (NZDF) would have known she would not get the job because from the very beginning Ms Jawad's country of origin, and the fact she had lived overseas, would have been known.
"I think it's very disingenuous to actually put someone through all that process and then tell them they don't meet the security criteria. Wouldn't that be something you would do first ?"
She said despite being a New Zealander, Ms Jawad was made to feel as if she was not welcome.
"Common sense didn't prevail, in that, yes we need to balance safety and security, but that poor woman probably doesn't feel that she's welcome in the NZDF even with the review of their decision."
Dame Susan said it was an example of a growing trend of racial discrimination in New Zealand.