The 22-year-old's left knee buckled in the third quarter of the Magpies' six-point defeat to Sydney on Friday night.
Scans on Saturday revealed Steene had damaged his ACL and would need a knee reconstruction.
"Oscar has worked extremely hard over the past few years to overcome injuries and get his opportunity at AFL level, so we are all incredibly disappointed for him," Collingwood football boss Charlie Gardiner said.
"Since debuting earlier this year, Oscar has been an exciting addition to the team with his athleticism and competitiveness, suggesting he has a bright future ahead.
"This is an unfortunate setback for Oscar which we'll support him through, but he is a resilient and determined young guy who we know will put everything into his recovery."
Scott Pendlebury (rested), Darcy Moore (concussion), Patrick Lipinski (concussion) and No.1 ruck Darcy Cameron (ankle) were all on the sidelines as the Magpies lost 11.15 (81) to 10.15 (75) to the Swans at the SCG.
The visitors had soared to a 33-point lead, but coughed up the ascendancy after a thrilling second-half fightback from the Swans.
"We'll get a few troops back," Magpies coach Craig McRae said.
"'Pendles' will be back for his big milestone, we're looking forward to celebrating that."
McRae defended his decision to rest Pendlebury for the second time in three rounds, with the move allowing the 38-year-old to play his 433rd game and break the VFL/AFL games record in front of a home crowd at the MCG next week against West Coast.
"Would you want to celebrate the record for the most games in the history of the game here tonight or would you rather do it next week at the MCG?" McRae said.
"That's a simple question, and respectfully, when 'Pendles' has played that many games, we want to make sure that we celebrate him in the right manner.
"His body isn't as bulletproof as you think it is.
"Five and six-day breaks, all the data says that he's just getting to the line, and we're looking after him, and we'll celebrate him appropriately."
Jack Buller and Dan McStay were made to fill Steene's void, but struggled against an in-form Brodie Grundy.
Former Magpies ruck Grundy, who won the Goodes-O'Loughlin Medal for his best-on-ground performance, said he was left impressed by Steene.
"Best wishes to him (Oscar Steene). He's a great young talent," Grundy said.
"I've been watching him all year, and he gave me a few headaches there ... He can jump through the roof."
Key forward Tim Membrey (hamstring) could also return for the Magpies, while midfielder Harry Perryman is at least two weeks away.
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