He will undergo surgery, and an official timetable for his return will be determined at a later date, the team said.
Knight was injured during a pro-am game on Wednesday in Miami.
Knight, 25, played in 54 games (five starts) last season and averaged 11.0 points and 2.4 assists in 21.1 minutes per game.
Phoenix acquired Knight in a three-team deal with Milwaukee and Philadelphia at the 2015 deadline in exchange for a lightly protected Los Angeles Lakers first-round pick that has become one of the most valuable trade assets in the league. (That pick will be unprotected in the 2018 draft and will go to either Boston or Philadelphia depending on where it falls in the draft order).
Knight has three years and about $44 million remaining on his contract. Phoenix has dangled Knight in trade talks off and on for at least the past year, and found no team who would take on Knight's contract without also nabbing draft assets.
Knight is expected to have surgery on Friday.