The star forward was involved in a late collision with Colombia's Juan Camilo Zuniga in the 88th minute, and will not be available when Brazil face Germany in the semifinal on Tuesday, or for the final on July 13, should Brazil advance.
Team doctor Rodrigo Lasmar said Neymar broke the third vertebra in the lumbar region of his back.
"It is a benign fracture," Lasmar said. "This news is not easy, but he will not be available at this World Cup.
"The fracture does not require surgery. There will be a conservative treatment; [he] will need physiotherapy and comfort to ease the pain."
Before the extent of the injury was revealed, Luiz Felipe Scolari said it would be difficult for Neymar to recover in time, simply judging by the amount of pain the 22-year-old was in.
"We lost Neymar, which probably based, on what I'm seeing, he won't be able to play," Scolari said. "We knew he would be hunted, so we are in a difficult situation, but we have good players who can come in. I think we will have a great game.
"There will be a series of exams because he was kneed on his lower back and he was crying of pain. We don't have an idea, but I can guarantee it won't be easy for him to recover, based on what the doctor told us and the pain he's in. I don't know, I really don't know. I hope it's OK."
In the semifinal, Brazil will also be without suspended centre-back Thiago Silva, who received his second yellow card of the tournament against Colombia.
The Selecao booked their place in the last four thanks to goals from Thiago Silva and David Luiz, with James Rodriguez's penalty proving just a consolation.
However, the gloss was taken off the win after Neymar went down injured following a heavy challenge from Zuniga.
Neymar appeared to take a knee in the back, and as the medical staff came out to attend to the forward, they decided to stretcher him off the field.
The forward was swiftly taken down the tunnel while covering his face with his arm.
Zuniga said there was no malice in his challenge on the Brazilian star.
"It was a typical play. I never had the intention of hurting any player," he said. "On the pitch, I play for my country, and never have the intention of hurting anybody. I was only defending my country's jersey.
"The game was hotly contested, and Brazil were coming in strong and so were we. ... I hope he recuperates soon [and] that it is not serious as he is a great player for Brazil and for world football."
Brazil players spoke out in support of Neymar, with both Hulk and Fred saying they will play harder while thinking of their fallen teammate.
"Neymar is a guy who worked so hard. We saw his dedication in training. God will heal you ASAP. Neymar, we will work to please you," said Fred.
Hulk said Neymar needed more protection from the referees after being repeatedly targeted by opponents.
"Every time is like this, players always come after Neymar, the referees need to do more to keep this from happening,'' he said.
Brazilian President Dilma Rousseff sent her support to Neymar before he was ruled out of the tournament, saying "Along with the rest of Brazil, I'm hoping for the recovery of our greatest player."
Como todo o Brasil, estou na torcida pela recuperação do nosso craque #ForçaNeymar
- Dilma Rousseff (@dilmabr) July 4, 2014
Fractured vertebra cuts Neymar's World Cup short
ESPN FC's John Sutcliffe reports on Neymar's fractured vertebra, which will see him miss the remainder of the World Cup.
Neymar taken to hospital
Brazilian star Neymar was taken to hospital after being kneed in the back in Brazil's 2-1 victory over Colombia.
Neymar out of World Cup
Neymar will miss the remainder of the World Cup after suffering a fractured vertebrae in victory over Colombia.
Neymar stretchered off in second half
Brazil's Neymar had to be stretchered off due to injury during the second half against Colombia.
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