Recovery time for the surgery is approximately eight weeks, according to the Knicks, so Wallace likely will miss the rest of the regular season and at least the first week of the playoffs.
The Knicks announced Wednesday that the injury -- a fracture of the fifth metatarsal -- was revealed via new X-rays and was a "progression" from the stress reaction in his left foot.
Wallace had been sidelined since Dec. 13 with the stress reaction. The Knicks held out hope that Wallace eventually would be able to return to the lineup, claiming he had taken part in some aspects of practice in recent days.
But in an indication that the Knicks were not confident in Wallace's full recovery, they signed free-agent big man Kenyon Martin to a 10-day contract Saturday.
Wallace played well for the Knicks prior to his injury, averaging 7.2 points and 4.2 rebounds in 14.6 minutes over 20 games. The 38-year-old ended a two-year retirement and joined the Knicks in training camp, signing a one-year contract for the veteran's minimum.
The Knicks figure to miss Wallace's defensive presence. With Wallace on the floor, the Knicks had allowed 97.1 points per 100 possessions. With Wallace on the sideline, the Knicks have given up 104.1 points per 100 possessions.
When Wallace was still trying to get back on the floor last month, a faction in the Knicks' organization wanted to cut ties with the veteran and pursue another player, according to two league sources.
Another faction in the organization that included coach Mike Woodson, who coaxed Wallace into coming out of retirement, wanted to give the veteran time to see if his injury could heal.
The Knicks opted for the latter, but Wallace never was able to make it all the way back.
Woodson called Wallace's prognosis a "blow" for the Knicks, who are in first place in the Atlantic Division but had lost four of five entering Wednesday's game.
"He's gone through so much work to try and get back on the floor and then this happens," Woodson said.
A league source with knowledge of the team's thinking expects the Knicks to keep Wallace on the roster for the rest of the season. If the Knicks want to open up a roster spot, they will have to release another player or elect not to re-sign Martin.
Woodson said the Knicks haven't considering cutting Wallace at this point.
"The only thing I've thought about right now is his health and going through the surgery successful and seeing what happens from there," Woodson said.
The coach is holding out hope Wallace can make it back during the postseason.
"I'm hoping, yes," Woodson said. "If the surgery is successful then he's got to put forth the effort to rehab and we'll welcome him back when he's ready to go.
"He's just got to stay mentally tough and put in the work and see what happens."
Ian Begley is a regular contributor to ESPNNewYork.com.