James sustained the injury in Chelsea's 2-0 win at AC Milan in the UEFA Champions League on Tuesday.
The 22-year-old, who recently extended his Chelsea contract until the summer of 2028, was expected to be England manager Gareth Southgate's first choice right back in Qatar.
Instead, Southgate is now faced with a real headache in a position England were previously spoilt for choice, with Trent Alexander-Arnold and Kyle Walker also nursing injuries at the moment.
A prognosis on James' injury has revealed that the Chelsea academy graduate will be sidelined for a two-month period.
"Following the knee injury sustained in our away match against AC Milan, Reece has received treatment from the Chelsea medical department and visited a specialist this weekend," Chelsea said in a statement.
"After consultation between all parties, Reece will now undergo a rehabilitation programme and is expected to be out for eight weeks."
James has so far featured 15 times for England.
The Three Lions are in the same group with Iran, Wales and USA at the World Cup group stage.
