The 33-year-old Chelsea midfielder underwent an MRI in Munich on Monday morning to assess the damage suffered in Saturday's FA Cup final, and the scan showed ligament damage to his right ankle.
Ballack was injured following a heavy challenge from Portsmouth's Kevin-Prince Boateng in the Blues' 1-0 win at Wembley and is expected to be out of action for eight weeks.
"National team captain Michael Ballack is out of the 2010 World Cup in South Africa. This is the result of an MRI on Monday morning in Munich," read a statement from the DFB this morning.
"A tear of the medial collateral ligament of the right ankle was found. The right ankle is immobilised in a plaster. He will have to wear a special shoe for two weeks.
"After the diagnosis of national team doctor Hans-Wilhelm Muller-Wohlfahrt today, a complete healing of the injury is expected. Ballack's return to training is possible at the earliest in eight weeks."
The news will come as a massive blow to Germany coach Joachim Low.
Before the diagnosis was known, he told the German FA website: "When we found out about the injury on Saturday, we were all very concerned. We had no accurate picture of what had happened.
"The good news is that nothing is broken.
"But he has a lot of pain and is restricted in his movement.
"We need clarity but we obviously hope the injury proves to be nothing serious.
"Michael is our captain and one of our leading players."
Former Germany boss Rudi Voller claimed Ballack was irreplaceable after learning of his withdrawal.
Voller, who led the national team from 2000 to 2004, said in the Bild newspaper: "It's brutal, terrible for Michael.
"He was full of optimism and wanted to play a good World Cup.
"There are players in the team who can't be replaced and Michael Ballack is certainly one of them ."
Wolfsburg general manager and former Germany international Dieter Hoeness feels Ballack's influence will also be missed in the dressing room.
He said: "It is a setback, no question.
"Michael Ballack is an excellent player but, above all, he is a leader.
"I do not see many alternatives, Michael Ballack is very difficult to replace."
Former Germany midfielder Olaf Thon added: "After losing Michael Ballack, we have lost the head of the team.
"For him personally, it is a real shame because South Africa would have been his last World Cup as a player."
Former Germany coach Berti Vogts hopes Ballack's absence will allow other players - most notably Bayern Munich's Bastian Schweinsteiger - to take on a more important role.
Vogts said: "His absence could prompt other players to give more.
"Bastian, for example, is in superb form and I think he can be one of the leading personalities at this World Cup."