However, a scan found only a grade two medial ligament injury, with no damage to his anterior cruciate ligament.
Latham is expected to be out of action for somewhere between four to six weeks and has earmarked a return against the Crusaders on May 10.
This is Latham's last season with the Reds before he joins English outfit Worcester and he is desperate to play again before the end of the season.
"I always like to test myself against the best and the Crusaders are the best - so that's the game I'm aiming for," Latham said.
Reds coach Phil Mooney is delighted he will be able to call on the services of his star full-back later in the season.
He said: "A grade two medial is normally a four to six week injury but Lathe is adamant he will be right to play against the Crusaders and against the Waratahs the week after that - that's his goal."
The Reds have a bye this week with their next game at home against the Western Force on April 18.
Sam Cordingley is likely to miss the clash with the Force but Mooney is hopeful his captain will be back sooner rather than later.
"We'll just monitor Sam's calf injury over the next week or so but I doubt he'll be ready for the Force match," Mooney said.
"Our one consolation there is that Benny Lucas has been playing some great footy at scrum-half so this will be another opportunity for him to step up.
"He just gets better with every game."