The Wolfsburg centre-back sustained the problem in training on Thursday and will now undergo an operation to resolve the damage.
The news of Barzagli's absence is another blow to coach Roberto Donadoni following the loss of captain Fabio Cannavaro before a ball was kicked this summer.
"The Euros are over for Andrea Barzagli," confirmed a team spokesman.
"The defender, injured in training, immediately underwent checks which showed a tear in the meniscus of the left knee.
"The player has expressed a desire to stay with the squad but in the coming days he will have an operation."