Grealish was dismissed late on in the game for a second yellow card after going to ground under a challenge from Joleon Lescott.
It was the only blot on what was a very good day for the club as they made it two wins in a week over their rivals thanks to goals from Fabian Delph and Scott Sinclair in a 2-0 win.
Grealish was adjudged to have dived after going to ground when he knocked the ball past Joleon Lescott, though there was contact during the fall, and Sherwood believed Grealish was just trying to get out of the way to avoid getting hurt in a challenge.
He's quoted in the Birmingham Mail, saying: “He knows someone’s coming in to kick him so he’s toed the ball away.
"I think he’s trying to just evade contact just to protect himself and the referee’s seen that as a dive, unfortunately for Jack."
It means the winger will be unavailable for the huge clash in the Premier League against Sunderland at the Stadium of Light at the weekend, as Sherwood's side look to put some distance between themselves and the relegation zone, and leapfrog Gus Poyet's side in the process.
But it could be a learning curve for the youngster as he finds his way in the professional game. He may well have been within his rights to go down under the challenge but sometimes the referee doesn't see it that way.
Given that not everybody felt the incident warranted a second yellow card, it does seem a little harsh he was dismissed during the dying minutes of the game.