“Tests carried out on the Spain international this afternoon… have confirmed the national team captain suffered a ruptured anterior cruciate ligament,” the Spanish football federation said.
Putellas was hurt during a training session on Tuesday, with the injury initially described as a sprain.
The 28-year-old playmaker was expected to be one of the stars of the tournament that begins in England on Wednesday. Last week she became the first Spanish woman to win 100 caps for her country.
Spain had already lost their all-time top goalscorer Jennifer Hermoso to injury.
Hermoso, who recently signed for Mexican club Pachuca from Barcelona, sustained a knee injury last month shortly after joining up with the Spain squad.
According to local media, Spain coach Jorge Vilda is expected to call up Real Sociedad’s Amaiur Sarriegi to replace Putellas.
Spain were considered one of the favourites as they bid for a first major women’s tournament success.
Spain open their campaign against Finland on July 8 in Milton Keynes, before further Group B games against record eight-time champions Germany and 2017 losing finalists Denmark.