The former Everton midfielder limped out of Rovers' 2-1 victory over Chesterfield in December with medial knee ligament damage.
It was initially hoped Wallace, 21, would only face a one-month absence but the damage has proved to be more serious than first feared.
Manager Ronnie Moore told Tranmere's official website: "It looks like James' operation will go ahead next week, which is him done for the season.
"So that's disappointing because he's been a big miss for us. He's a class act and he's hard to replace."
- Sports & Recreation