The 27-year-old flyer fell awkwardly after running into the back of Scott Higginbotham while chasing a kick in the 19th minutes.
Mitchell was clearly in great discomfort and TV replays showed his ankle at an unnatural angle. The game was halted as Mitchell received treatment on the pitch before being stretchered off.
Waratahs head coach Chris Hickey confirmed the extent of the injury and expects the Wallabies star to be sidelined for a substantial period.
"He'll be gone for the year," said Hickey. "It's a pretty significant injury."
Waratahs captain and Wallabies veteran Phil Waugh admitted the injury had an effect on his side.
"I think it rattled anyone who saw it," said Waugh "It was disappointing - you don't want to see that happen to anyone in the world in any sport."
Mitchell was widely expected to be in Robbie Deans' squad for the World Cup that kicks off on September 9. But despite the agony of missing the World Cup, Mitchell will still be able to target playing against the Lions in 2013.
The Waratahs were left counting the cost of the inter-state derby and have been left facing an injury crisis. Waugh, No.8 Wycliff Palu and Wallabies star Kurtley Beale all also suffered injuries and went for scans following the game.
"We've already lost quite a few of our backs, it's a situation where we're shuffling players a little bit in terms of positions, so the outcome of Kurtley's scan and his availability would certainly force us into a situation where we would have to reselect the team," added Hickey.
But his side could be handed a timely boost with the return to action of Berrick Barnes. The fly-half has missed the last four games following a clash of heads but has been passed fit to play.
"Part of his clearance to return to play is that he can complete the training and he feels good after training," Hickey said.
"At this stage we've got our fingers crossed that everything will go well for him during the week.
"Berrick was basically cleared medically a couple of weeks ago, with all the testing, all the MRI scans etc."
"Our main concern has been around how he feels personally and he'll see our doctor on Thursday just to confirm that he's feeling well and he's ready to return."