The 24-year-old has been struggling with a cartilage problem for weeks and will undergo surgery to repair the damage.
Town physiotherapist Matt Byard told www.itfc.co.uk: "The specialist wanted to give Jon the weekend to see if the knee showed any sign of settling down.
"As we expected there has been no improvement. We will have more idea of return date after the operation."
Walters has fired in 16 goals in 45 appearances for the Tractorboys since joining them from Chester in January 2007.