Rose reported earlier in the day with right knee pain. An exam and subsequent MRI confirmed the tear.
A timetable for Rose's return will be determined once he has surgery, the team said. The Bulls and Rose decided to fix the meniscus tear instead of cutting the damaged part out in order to elongate Rose's career.
The 26-year-old was averaging 18.4 points and 5.0 assists in 46 games this season.
The general feeling within the organization from several team personnel Tuesday night was one of disbelief and sadness after all the rehab work Rose put in over the past two and a half seasons.
The torn meniscus is the same injury he sustained Nov. 22, 2013, against the Portland Trail Blazers.
Rose tore the anterior cruciate ligament in his left knee in Game 1 of the 2012 playoffs against Philadelphia. The 2011 NBA MVP missed the entire next season and played in only 10 games before the previous right knee injury shelved him for the rest of last season.
Over the past three seasons, the Bulls will have paid Derrick Rose $52.8 million. They have received roughly $10 million of that money back (19 percent) through insurance.
The Bulls will not be reimbursed by insurance, as there are only 25 games left this season. NBA teams start to be reimbursed for injuries once a player has missed 41 consecutive games with the same injury.
Chicago got a 41-game credit for the 2012-13 season, when Rose missed the entire season, and a 20-game credit for the 2013-14 season, when he missed 61 straight games.
It's unclear when Rose reinjured the knee. He appeared to be rounding into form last month, averaging 22.6 points over his final 14 games before the All-Star break, but he had struggled since returning to the court after the time off.
He was scratched for one game last month for soreness in his left knee and missed four games in November with a hamstring injury.
Rose had eight points on 1-for-13 shooting while playing almost 33 minutes in Monday night's 87-71 victory over Milwaukee. He averaged 10.7 points on 23.5 percent shooting in Chicago's first three games after the break.
It's quite a blow for the surging Bulls, who have won six of seven and appeared to be picking up steam after a tough stretch.
The impact was also felt in Las Vegas, where the Bulls' odds to win the title plummeted from 8-1 to 20-1 at the Westgate SuperBook.
Chicago had been one of the most popular bets at William Hill's Nevada sportsbook, where only the Golden State Warriors had attracted more futures bets than the Bulls. With Chicago falling, the Cleveland Cavaliers' odds improved from 3-1 to 5-2 at the SuperBook. The Atlanta Hawks went from 7-1 to 5-1.
"I was speechless," Westbrook told NBA TV. "It's so tough for a guy like that who plays so hard and has to go through it again and again and again."
Man feel bad for D.Rose! Keep your head up homie and stay strong G!— LeBron James (@KingJames) February 25, 2015
Damn man send one up for D Rose.. Hate this keeps coming back but like before it won't keep you down! 🙏— Paul George (@Yg_Trece) February 25, 2015
John Calipari, Rose's former coach at Memphis, also took to Twitter on Wednesday morning to express his feelings after hearing the news.
I'm sick over the @drose injury. He has been through so much and deserves better. Fate has intervened again for this good man.— John Calipari (@UKCoachCalipari) February 25, 2015
.@drose will use this as fuel. I pray for him daily.— John Calipari (@UKCoachCalipari) February 25, 2015
ESPNChicago.com's Nick Friedell, ESPN.com's Darren Rovell and David Purdum and The Associated Press contributed to this report.