The Gunners confirmed on their official website that Walcott is likely to be out for at least six months as a result of the anterior cruciate ligament injury sustained in the 2-0 FA Cup third-round win over Tottenham at the weekend.
Walcott was taken from the field on a stretcher - and was subsequently pelted with objects thrown from the away end - after appearing to jar his knee when making a tackle during the closing stages of the encounter although the injury has turned out to be more severe.
Arsenal confirmed on their website: "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 24-year-old did not appear to be in severe pain as he was carried off the field at the Emirates Stadium on Saturday and even signalled "2-0" in the direction of 5,000-strong Tottenham fans, as missiles, including coins and plastic bottles, were seen to hit medical staff as they carried the stretcher around to the tunnel on the halfway line.
Walcott learned on Monday that he would face no disciplinary action for his hand gesture, but the latest news is much more devastating.
The news will also be desperately disappointing for Gunners boss Arsene Wenger, who may be forced to bolster his options in the January transfer window as a result of his striker shortage.
Walcott was given a rare outing up front against Spurs, with Olivier Giroud ruled out due to illness and Nicklas Bendtner expected to miss all of January with his ankle problem picked up when scoring a late goal in the 2-0 win over Cardiff on New Year's Day.
Walcott would also have been hoping to play a starring role for England at the World Cup in Brazil this summer.
He missed the final two qualifiers against Montenegro and Poland due to injury, where Tottenham's Andros Townsend excelled in Walcott's usual role on the right wing.
It was anticipated Walcott and Townsend would be in direct competition with each other for a starting berth although both would have been expected to be on the plane to Brazil.
The former Southampton forward is yet to play in a World Cup match, having been unused when he was a shock selection in Sven-Goran Eriksson's squad in 2006, while his omission by Fabio Capello four years later was equally surprising.