The 28-year-old suffered a tear to the medial collateral ligament in his right knee during Huddersfield's 1-0 loss to Arsenal at Emirates Stadium on Saturday.
He is likely to miss at least eight Premier League fixtures in a blow to the Terriers' bid for survival.
Reports had suggested the Socceroos could select Mooy for their Asian Cup defence, which commences on January 6, with a view to him featuring during the knockout rounds, but the former Melbourne City man dismissed that possibility.
The news comes as a huge blow to Australia boss Graham Arnold, with Mooy becoming a crucial part of his side in recent years.
"I'm gutted to be missing an important time for club and country," Mooy said.
"We've got a lot of fixtures over the Christmas period at Huddersfield Town, but I back the team to continue our good performances and get the results that we're targeting.
"I'm also sad that this injury will rule me out of the Asian Cup. I'd like to wish the Socceroos all the best as they head to the UAE. I'll be supporting them from afar.
"The hard work on my recovery has already started and I'm looking forward to being back out on the pitch."
Celtic midfielder Tom Rogic is also a doubt to participate at the Asian Cup with Australia, whilst his team-mate Daniel Arzani has already been ruled out of the tournament after suffering an ACL injury on his debut in November.
Australia are to begin their title defence against Jordan and will also come up against Palestine and Syria in Group B.
As far as Huddersfield are concerned, David Wagner’s side will also be without captain Tommy Smith for the remainder of their busy December schedule after the right-back sustained a tear in his hamstring against Arsenal.
Terence Kongolo and Jonathan Hogg picked up knee and groin problems respectively in the same match and are being monitored on a daily basis.