McGahee, who was injured Sunday against San Diego, has rushed for 731 yards and four scores this season, and racked up another 221 yards on 26 receptions.
The Denver Post reported an MRI taken Monday revealed the tear of the medial collateral ligament.
The 31-year-old had 1,199 rushing yards and five total touchdowns on 249 attempts last season.
Rookie Ronnie Hillman is expected to share McGahee's playing time with Lance Ball.
Swim Week Miami Beach 2014 [PHOTOS]