Waters, 36, came out of retirement before the start of the season and was playing under a one-year contract.
He spent most of his career with the Kansas City Chiefs and spent a season with the New England Patriots before sitting out the entire 2012 season.
Waters, a six-time Pro Bowler, was injured in the Cowboys' 31-30 loss to the Detroit Lions on Sunday. He also suffered a rib and left knee injury.
Mackenzy Bernadeau will replace Waters at right guard. Cowboys owner Jerry Jones also said the team will look to add depth from its practice squad.KING: Matthew Stafford comes of age in Lions' win