Dunga, questioned over the incident during Brazil's trip to Singapore, said he was making reference to severe pollution in the Chinese capital which gave players blocked noses.
Saturday's "Superclasico" friendly was anything but, as a fired-up Brazil won 2-0 to restore pride against their fierce rivals following a poor World Cup campaign on home soil.
"I never mentioned that the players were using drugs. This kind of statement came from the media," Dunga told reporters in Singapore, where Brazil play Japan on Tuesday.
"Maybe it's due to the pollution in China that players had blocked noses all the time."
Media interpreted Dunga's repeated gesture as a "cocaine nose", implying drug use. Argentine legend Diego Maradona has endured well-publicised struggles with cocaine.
"If Brazil wants a competitive team we have to go for new tactics," Dunga said, defending his animated behaviour.
"Otherwise the players will be playing calmly and I think this is not what Brazilians expect for the Brazilian team."
Dunga added there may be a higher risk of injuries on a threadbare pitch at Singapore's new, 55,000-seat national stadium, complaining "most of it is sand".
"The field of course raises the possibility of having injured players because there's a lot of sand and I hope that the sand doesn't create holes in the pitch during the match," he said.
"It's a risk we have to take but we can't say if there are going to be any injured players."
Singapore's football association has also raised concerns about the pitch at the billion-dollar sports development, saying it falls far short of international standards.
On Monday superstars such as Neymar, Kaka and Oscar kicked up clouds of sand as they chased an awkwardly bouncing ball during a pre-match training session at the stadium.
Dunga said he would use all six substitutes available against Asian champions Japan with his squad exhausted after the trip to China, where they had to endure choking smog.
"I want to use all six substitutes, especially because the players had to go through a very long journey to China and the pollution conditions were really bad," he said.
"They are really tired because of that so I plan to use all my subs in this match."
Dunga is looking for a fourth straight win since taking over following Brazil's humiliating World Cup exit, when they were beaten 7-1 by Germany in the semi-finals.