An MRI taken Thursday revealed the injury, and Oladipo will undergo surgery at a date to be determined.
Pacers officials had been preparing for the worst: the loss of the franchise's most important player as the team competes for the best record in the Eastern Conference. After Oladipo was ruled out for the season, the Pacers' title odds went from 80-1 to 200-1 at the Westgate Las Vegas SuperBook.
Coach Nate McMillan said he was unsure whether Oladipo would be ready for the start of next season.
"It's unfortunate. He's a special player and a special person," McMillan said. "It will be tough, but we have to continue to move on."
Oladipo crumpled to the floor during Wednesday night's home game against the Raptors after falling in an attempt to disrupt a pass to Toronto's Pascal Siakam. Oladipo's leg bent awkwardly on his way to the court.
"I didn't see what happened," Siakam said after the game. "Watching the replay, he stuck his leg while he was falling. That's when he hit me. It's just an unfortunate situation. It's really scary. It's tough."
The severity of the injury was evident almost immediately as trainers draped a towel over Oladipo's leg and players from both teams surrounded him while he was down. He received a standing ovation from fans as he was carted off the floor on a stretcher and responded by waving to the crowd.
Oladipo missed 11 games earlier this season with a sore right knee. McMillan said he had not been told whether the previous knee problem had any relationship to the new injury.
"I haven't talked to the trainers about it, but he wasn't complaining before last night," McMillan said, though Oladipo appeared to be favoring the knee as recently as last week.
Oladipo has transformed the Pacers since his arrival in 2017 from the Oklahoma City Thunder, developing into an All-Star for the first time in the 2017-18 season. He is the Pacers' leading scorer this season, with 18.8 points per game.
Despite losing Oladipo in the second quarter, the Pacers defeated the Raptors 110-106 to improve to 32-15, good for third place in the East standings.
"The season's not over," Darren Collison said a few minutes after players were told the extent of Oladipo's injury. "They don't know our mindset in the locker room. They don't know what we have."
McMillan said Tyreke Evans will replace Oladipo in the starting lineup and first-round draft pick Aaron Holiday will get more playing time off the bench. In addition, the Pacers intend to promote Edmond Sumner from the G League to the playing roster.
They could still make a move before the Feb. 7 trade deadline.
"We will talk about that," McMillan said. "We will talk about where we go from here."
Information from ESPN's Adrian Wojnarowski and The Associated Press was used in this report.