Milligan failed to train on Tuesday at the Estadio Beira-Rio in Porto Alegre and coach Ange Postecoglou later confirmed the 28-year-old midfielder would be unable to take part in Australia's match against the Dutch on Wednesday.
Earlier, Postecoglou had hinted at Milligan's injury by revealing he was considering more changes than the forced swap of injured right-back Ivan Franjic (hamstring) for Ryan McGowan.
"We may have one or two," Postecoglou said when quizzed about potential changes.
"Part of it is the condition of the players and who's recovered well.
"We may make a one or two changes, or maybe more than that.
"We will keep our options open and will try a couple of things at training today.
"We've made a decision on which way we'll go but obviously we've got to get through today's session.
"I've kind of learnt from the past to keep your options open 'til game day just in case.
"We've looked at a couple of different ways but in terms of the personnel we've made a decision.
"So if we get through training today that's how we'll line up tomorrow."
Milligan started in defensive midfield alongside Australia skipper Mile Jedinak in the Asian Football Confederation member's 3-1 loss to Chile last week and was also part of the starting line-up in his country's two warm-up friendlies versus South Africa and Croatia.
The Melbourne Victory captain is well regarded by Postecoglou - his former club boss - and was expected to start in all of Australia's three games in Group B.
But with doubts over whether Milligan will play another minute in Brazil, the door is thrown wide open for a replacement.
Austria Vienna's James Holland, Massimo Luongo of Swindon Town and Matt McKay - Postecoglou's former captain at Brisbane Roar - are among the likely candidates to step into midfield against the Dutch and Spain.
While the Netherlands' 5-1 thrashing of Spain would have many coaches planning to pack the defence, Postecoglou said Australia cannot afford to forget about attacking.
"We know we have to be strong defensively, the Dutch are dangerous going forward as they showed against Spain," he said.
"We know that (Robin) van Persie and (Arjen) Robben will be a challenge but we knew that coming into the tournament.
"In saying that we also need to be attack minded, we can't just defend for 90 minutes."
