The Wales star limped off early on during the Scarlets’ Guinness PRO14 victory over Benetton earlier this month.
Davies will now miss Wales’ November internationals against Scotland, Australia, Tonga and South Africa as well as a number crucial domestic and European fixtures for the Scarlets.
“He has ruptured his posterior cruciate ligament so he will be out for around three to four months,” said Wayne Pivac.
“It is a massive blow. With two other sevens out it puts a real strain on the team.
“James is a quality player, not just with his work at the breakdown, but the way we play the game in attack, he is a big part of that. You lose that experience as well as his ability.
“He has become a leader in the group. He has been promoted in terms of that with the likes of John Barclay and Tadhg Beirne moving on.
“He will be sorely missed, but it is just one of those things.”
Despite the loss of Davies the west walians are hopeful back-row pair Josh Macleod and Will Boyde will be available for their derby against the Ospreys a week Saturday.
Meanwhile, Davies’ older brother Jonathan is set for his first competitive appearance of the campaign against Southern Kings in Llanelli on Saturday.
The British and Irish Lions centre has been carrying a hamstring niggle that forced him to withdraw from the opening match Prop Rob Evans remains on course to feature against the Ospreys, but Leigh Halfpenny is set to miss the Kings date after limping off with an ankle issue in Galway.
