Walsh, who was an integral part of the England team that won the Euros last year, crumpled to the turf at Sydney Football Stadium without contact in the 38th minute and immediately called for medical assistance.
She was taken off the pitch on a stretcher and later left the stadium on crutches, stoking fears of a serious anterior cruciate ligament (ACL) injury - due to which several footballers have already been ruled out of the showpiece tournament.
"Following a scan late on Saturday afternoon, we can confirm Keira Walsh has not suffered an ACL injury," England said in a statement on Saturday.
"Walsh has been ruled out of Tuesday's final Group D match against China in Adelaide and will remain at England's Terrigal base to continue her recovery.
"Her knee injury will continue to be assessed by England medical staff and no further update will be provided at this stage."
The fourth-ranked Lionesses, who defeated Haiti 1-0 in their opener and are top of Group D with six points, play China on August 1st.
A draw or victory would ensure their progress to the knockout stages.