"If he finally decides to retire he'll probably take it and if he doesn't he'll wait until he does. I don't think he is philosophically opposed," he said.
The Prime Minister said he offered McCaw a knighthood after the 2011 World Cup as the public were pressuring him to do so. He turned it down.
Mr Key said some sportspeople accepted honours at levels below a knighthood in the middle of their career.
Coach Steve Hansen, for one, was made a Companion of the New Zealand Order of Merit - second in rank to a knighthood - for his role as assistant coach at the 2011 world cup. Then coach Sir Graham Henry accepted a knighthood.
Mr Key said: "A knighthood is generally at the end of career or they are truly remarkable in terms of what they've done. Often it's more than just that they are good at their particular position."
When asked if Dan Carter would be offered an honour, Mr Key said he was a great first-five and it was a shame he was leaving the country.