The tear was discovered during an MRI on Thursday after Wallace had experienced increased swelling in one of the knees following a 12-point, 10-rebound effort in a win against the Atlanta Hawks on Wednesday.
The 31-year-old Wallace was set to meet with team doctors Friday to determine how he'll proceed. Celtics coach Brad Stevens also revealed that Wallace is battling bone spurs in his ankles, which were already set for postseason surgery, but the meniscus tear could accelerate the visit to the operating table.
Celtics president of basketball operations Danny Ainge said no firm decision has been made about when Wallace will undergo surgery, and the veteran had pondered playing through the pain, but Ainge believes Wallace will ultimately elect for what is believed to be the first surgery of his career.
"[Wallace] had some knee soreness [so Thursday he] went to the doctor and had MRI. It shows he has a torn meniscus," Stevens said before the team's practice Friday at HealthPoint. "He's sitting there and he had no idea. I feel bad for him. I told you many times: Gerald's a warrior, he plays through anything and everything. Literally, anything and everything is what we're learning. The next step for him will be determined in the next couple of days, but obviously we want to prioritize his health."
With their depth thinned at the wing positions, the Celtics signed Chris Babb of the D-League Maine Red Claws to a 10-day contract on Friday.
Wallace initially struggled with being traded from Brooklyn to a rebuilding Boston squad this summer and didn't report until right before the start of training camp. He emerged as a veteran leader who wasn't afraid to voice his opinions. Wallace averaged 5.1 points, 3.7 rebounds, and 2.5 assists over 58 appearances, including 16 starts, most in place of injured shooting guard Avery Bradley.
Stevens hinted that Wallace's recovery time from the two surgeries could be lengthy, which could be another reason to operate sooner than later. Wallace has two years and $20.2 million remaining on his contract after this season.
In addition, Celtics center Jared Sullinger, sidelined the past three games due to a mild concussion, went through practice Friday and, if he responds well overnight, is expected to return to game action Saturday against the Indiana Pacers.
Sullinger took an elbow to the head from Chris Kaman of the Los Angeles Lakers last Friday. He woke up with a headache and sensitivity to light the next day and team doctors diagnosed the concussion. Sullinger passed all of the league's concussion protocol in recent days, but the team wants to see how he responds to his first full-contact practice before clearing him for Saturday's game.
Brian Robb contributed to this report from Waltham, Mass.