The injury was picked up last weekend against Clermont Auvergne and is likely to keep the experienced back on the sidelines for six to eight weeks.
With Wallace ruled out, Nevin Spence has been promoted to the starting line-up in his place and will combine with Darren Cave in the province's midfield.
The only other change sees Declan Fitzpatrick start at tighthead prop in place of John Afoa who had to return to New Zealand temporarily.
Afoa, who was not due to join Ulster until December 1, had made a prior commitment to carry out best man duties at Jerome Kaino's wedding.
The promotion of Spence and Fitzpatrick means Paddy Jackson and Adam Macklin are named among the replacements. The Development duo will make their Heineken Cup bows if they take to the pitch on Saturday night.
Commenting on the changes, Brian McLaughlin said: "Declan has proved to be a very good tighthead prop. A couple of years ago against Stade Francais in this competition he proved what he is capable of at this level.
"To lose Paddy is a blow. After the World Cup he came back itching to play and it's very unfortunate for him. But in Nevin Spence we have an able replacement and we have no doubts he can do an excellent job for us.
"We are very fortunate to have a lot of depth in that area with Ian Whitten and also Luke Marshall who is making his way back from injury."
The Ulster boss added: "Welford Road has always been a very difficult place to go. Maybe with the World Cup they haven't got off to the best of starts but with their internationals back they will be a tough nut to crack. But we are going there full of confidence."
ULSTER (v Leicester Tigers): Simon Danielli; Andrew Trimble, Darren Cave, Nevin Spence, Craig Gilroy; Ian Humphreys, Paul Marshall; Tom Court, Rory Best, Declan Fitzpatrick, Johann Muller (capt), Dan Tuohy, Stephen Ferris, Chris Henry, Pedrie Wannenburg.
Replacements: Nigel Brady, Paddy McAllister, Adam Macklin, Lewis Stevenson, Willie Faloon, Ian Porter, Paddy Jackson, Adam D'Arcy.