Walters, in career-best form, sustained the injury while playing five-eighth during the 29-28 golden-point qualifying final win over Canberra on Sunday, but bravely played on.
The club initially confirmed he had sustained damage and Walters would "work with the club's medical team to assess the next steps in his recovery".
AAP was told Walters had sustained a partial tear, which several NRL players have continued to play with, but a visit to a specialist on Wednesday confirmed reconstructive surgery was required, which will mean Walters likely won't play again until mid-2026.
Broncos legend and two-time premiership winner Kerrod Walters, said his nephew would not let the injury prevent him from shining in future.
"It's disappointing for Billy," Walters told AAP.
"He fought so hard this year to get his place in the starting team back and has played such good footy.
"Billy had the injury before at Wests Tigers (in 2020) so he knows what it is going to take to get back. I have every confidence he will come back bigger and stronger than ever.
"At five-eighth this year he has been very good and he was always very, very good at hooker.
"Billy is all about the team. We he had those setbacks when he was relegated (to the bench), he took it in his stride and put the team first."
Kerrod is the twin brother of former Broncos coach and five-time Brisbane title winner Kevin.
The Walters family will be huge in their support of Billy in the months ahead.
"I've sent Billy a message saying we feel for him and are right behind him after I spoke to Kevvie yesterday," Kerrod said.
"Billy has always had such pressure on him being Kevvie's son. He has had a really good year without Kevvie's influence on selections, as people would say. He is Billy Walters now, not Kevvie's son."
Billy Walters, contracted at the Broncos until the end of next year, spoke to AAP prior to the win over Canberra and explained why he was confident of playing top-class footy in the NRL into his mid-30s and beyond.
"I hope to. I might be 31 but I have only been playing full-time NRL for the last four years," he told AAP.
"I have only been in the NRL system the last six or seven years. I like to compare myself to (former Broncos winger) Corey Oates.Â
"He was the same age as me when he retired but was battered and bruised after playing for 13 years. I was a late bloomer and feel like I have a lot of good footy ahead of me.
"I have played 100 games of NRL now and am getting a bit older. With that comes being grateful.
"I try and treat every game as though it is my last so I make sure if it was to be my last I am proud of the effort and proud of the game I played. If I keep up that mentality, good things will come."
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