Sheets was waived hours after being hurt during a non-contact special teams drill. He fell to the ground, rolled in pain and eventually limped to the training room.
The season-ending injury was the second this week for the Dolphins. Rookie linebacker A.J. Edds was sidelined Monday by a knee injury and placed on injured reserve Wednesday.
Sheets played in two games as a rookie last year and was hoping to make the roster as a returner. He played running back at Purdue.
Patrick Cobbs, coming back from a knee injury last October, is the front-runner for kick returner duties.