The Sale Sharks fly-half suffered the injury during England's RBS 6 Nations Championship victory over Italy at Twickenham on Sunday and a scan revealed serious damage to the anterior cruciate ligament in his left knee.
It means Hodgson will be sidelined probably until mid-September, barely a month before England launch their World Cup campaign in Australia.
There is no doubt that the 22-year-old would have been an integral part of Woodward's plans Down Under, given his ability to play at fly-half or centre.
Hodgson started the first two England games of the year in the centre, but suffered his injury just six minutes after going on as a second-half replacement for captain Jonny Wilkinson against Italy.
Woodward must now revisit his midfield thinking, where Hodgson had become a key element. With a number of other injuries having severely hit the England camp this season, there could now be an opening for the hugely experienced Bath back Mike Catt to force his way back in.
Catt has suffered from a persistent hamstring problem this term, but if he can regain full fitness for any length of time, then he could return to the England set-up.
Hodgson is the latest victim of England's injury jinx as Phil Vickery (back) and flanker Lewis Moody (shoulder) are both unlikely to play again this season, while several key players - including Lions Martin Johnson, Jason Robinson and Neil Back - have all missed a game during England's current RBS 6 Nations campaign.
"I am very disappointed, but you have got to accept that things like this will happen in professional sport," Hodgson said.
Although the Yorkshireman could well be fit again before the World Cup kicks off in October, his lack of match fitness and general training work will inevitably count against him.
In addition to missing England's final two RBS 6 Nations games against Scotland and Ireland this month, he has also been ruled out of the summer tour to New Zealand and Australia, and will also miss three World Cup warm-up Tests in August.