The winger was stretchered off in the second half of Arsenal's 2-0 FA Cup 3rd round win over rivals Tottenham on Saturday.
It was initially feared he would be out of action for around four weeks but Arsenal have confirmed the problem is much worse than originally feared.
A statement on Arsenal's official website read: "After coming off injured in Saturday's 2-0 win against Tottenham Hotspur, the Club regrettably announces that Theo Walcott has sustained a ruptured anterior cruciate ligament of his left knee.
"Theo will have surgery in London in the near future and is expected to be out for at least six months, therefore missing the remainder of the season and the World Cup in Brazil in the summer.
"Everyone at Arsenal wishes Theo a speedy recovery and we look forward to seeing him back on a football pitch as soon as possible."
The news comes as a blow for the Gunners, who are currently in the midst of an injury crisis.
Walcott had featured up front for the game against Tottenham with first-choice striker Olivier Giroud and back-up Nicklas Bendtner both currently out of action.
Thomas Vermaelen, Alex Oxlade-Chamberlain, Aaron Ramsey, Yaya Sanogo and Abou Diaby are also out injured.
The England international has made just 13 Premier League appearances this term having been sidelined for more than two months with a stomach injury earlier this season.
Earlier on Walcott had avoided any serious punishment from the FA after he was seen making a 2-0 hand gesture to the Tottenham supporters, although both clubs have been called before the governing body after objects were thrown by both sets of fans during the game.