He sustained the injury to his left knee and following a scan yesterday evening, it was confirmed that he has suffered a ruptured anterior cruciate ligament.
With the Ireland international adding to the province's growing injury list, he will require surgery and a significant period of rehabilitation.
Wallace was ever-present during Ulster's successful run through the Heineken Cup pool stages, and will be a notable absentee when they tackle Saracens in their quarter-final clash at Twickenham on Saturday, April 6.
Luke Marshall replaced Wallace during three of Ulster's Pool 4 matches this season. The new Ireland cap is expected to deputise for the injured 33-year-old in the province's number 12 shirt.