The Swedes were hoping Grossman could return from the injury, but he tested the knee on Saturday and it did not go well.
"I have done everything I could, but unfortunately it did not work," Grossman told the Swedish newspaper Aftonbladet.
Grossman was injured in Sweden's second game of the tournament when he collided with teammate Magnus Paajarvi. The injury involved the same knee that kept Grossman out of the lineup the final ten games of the NHL season.
Stars forward Tom Wandell was knocked out of the World Championship for Sweden when he suffered a shoulder injury in an exhibition game against Finland.
Stars forward Loui Eriksson injured a groin in a game against Team USA on Wednesday but he did not miss any games, just the last few minutes of the contest.