The England U-21 forward suffered the injury in Sunderland's 2-1 victory against Leicester and underwent a scan on Monday.
Sunderland AFC said on their official website: "Results from the scans revealed Watmore has suffered a cruciate knee ligament damage, which is likely to rule him out of action for the remainder of the 2016-17 campaign".
The forward has played 17 times for the Black Cats in all competitions this season, making three assists.
The news will come as big blow for Sunderland, who just have Jermaine Defoe and Victor Anichebe as their only fit recognised forwards.