Mr Entwistle was questioned by a committee of MPs in London about the corporation's decision to shelve a report on sexual abuse claims against the late BBC presenter.
He accepted that the controversy raised issues of trust and described Savile's actions as gravely serious.
He said, however, that he does not accept charges that the BBC badly handled the allegations against the former presenter.
Mr Entwistle was told by BBC director of news Helen Boaden about the Newsnight investigation, which included interviews with Savile's victims, and its possible impact on planned tributes to Savile during an awards lunch on 2 December.
She told Mr Entwistle, who was then director of vision, that if the Newsnight investigation went ahead, he might have to change the Christmas schedules.
Asked today whether the tributes may not have been aired if he raised more questions, he replied: "That's the question I have asked myself and I was trying to find the right balance."
Mr Entwistle said he needed to know whether Newsnight had something that programme bosses thought was "good enough to proceed with".
Asked why he did not ask more questions, he said: "It wasn't because I didn't want to know. What was in my mind was my determination not to show undue interest."
Mr Entwistle told the House of Commons Culture, Media and Sport committee that Savile's activities were "a very, very grave matter indeed".
He said that when the scale and credibility of the allegations came to light, thanks to an ITV investigation, he immediately personally contacted the police.
Mr Entwistle admitted the scandal had raised questions of trust and reputation in the BBC.
"It is a gravely serious matter and one cannot look back at it with anything but horror that his activities went on as long as they did undetected.
"Of course, that is a matter of grave regret to me."
Committee chairman John Whittingdale told Mr Entwistle that the BBC's handling of the affair "is raising very serious questions about potential suppression to avoid embarrassment".
Mr Whittingdale asked him: "Would you accept that this has not been handled well by the BBC in the last few weeks?"
The director general replied: "No, I wouldn't accept that. I would accept that there have been times when we have taken longer to do things than in a perfect world I would have liked.
"But I think if you looked at what we have achieved since the scale of the crisis became clear, I think you see we have done much of what we should have done and done it in the right order and with proper respect paid to the right authorities."
Mr Entwistle's appearance comes the day after the BBC programme Panorama broadcast an investigation into Savile and into the decision to ditch the Newsnight film, at a time when he was head of TV.
Newsnight editor Peter Rippon stepped aside yesterday after the BBC said his explanation of why the show dropped its investigation into Savile was "inaccurate or incomplete".
BBC Inquiry
Mr Entwistle said the inquiry by Nick Pollard, former head of Sky News, into why the Newsnight investigation into Savile was dropped is expected to report back "in weeks".
He admitted a factually inaccurate account of the scandal in a blog by Newsnight editor Peter Rippon, who stepped aside yesterday, had caused embarrassment.
Mr Entwistle said: "If I can take the correction to the blog first, there's no doubt that it is a matter of regret and embarrassment that the version of events recorded in Peter Rippon's blog on October 2 did not turn out to be as accurate as they should have been."
Mr Rippon defended his decision to axe the report in a BBC blog earlier this month but yesterday the corporation issued a correction.
He originally said there was no evidence that staff at the Duncroft approved school could have known about allegations that Savile abused children, but the BBC said: "In fact, some allegations were made (mostly in general terms) that some of the Duncroft staff knew or may have known about the abuse."
Mr Rippon also said the women who spoke to Newsnight journalists had already spoken to police, but the BBC now says that is untrue and Newsnight uncovered new evidence about Savile's alleged crimes.
The corrected blog post said that while no allegations were made that BBC staff were aware of Savile's behaviour, Newsnight did hear allegations of "abusive conduct on BBC premises".
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