UFC president Dana White confirmed the injury on Twitter.
"It's true, Cruz blew his ACL," White said. "Stay tuned for more info."
The injury was initially reported by PhyteGurus.com.
Cruz (19-1) suffered the injury while preparing to make his fifth 135-pound title defense. He was also hoping to defeat Faber for the second time.
The two have met twice. Faber (26-5) defeated Cruz by first-round submission in March 2007 to claim the WEC featherweight belt.
Cruz would exact revenge July 2, 2011, at UFC 132, beating Faber by unanimous decision to retain his bantamweight title.
The rivals have been competing as coaches on this season's version of "The Ultimate Fighter."