It effectively means that the midfielder's season is over, having made way for January transfer deadline day signings Donny van de Beek and Dele Alli.
Davies has endured a frustrating campaign at Goodison Park.
The homegrown midfielder has made just seven appearances in all competitions, scoring one goal.
To compound Davies' troubles, he underwent surgery for a hamstring injury in January.
He suffered a high-grade tendon problem which required the 23-year-old to go under the knife in London.
Former Everton boss Rafa Benitez had hoped that Davies would be on the sidelines for "one or two months" when asked by reporters.
But the ex-England under-21 international's setback is seemingly more serious and he won't be involved again this campaign.
Davies hasn't played for Everton since the 0-0 draw with Tottenham on November 7, having previously been absent with a knee injury.
Why has Tom Davies been left out of Everton's squad?
After the closure of the January transfer window, Everton had 26 senior players in the squad after recruiting van de Beek, Alli, Anwar El Ghazi and Vitaliy Mykolenko.
Premier League clubs are only to register 25 players above the age of 21.
It meant that someone had to lose their spot. Newly-appointed manager Frank Lampard opted to omit Davies rather than fringe men such as Cenk Tosun or Jean-Phillipe Gbamin.
Nathan Patterson, signed from Rangers for an initial fee of around £11.5 million, does not towards that number as he's only 20.
Lucas Digne was also axed from the list after his departure to Aston Villa for £25 million, along with James Rodriguez - who left for Qatari club Al-Rayyan in September.
See Everton’s full Premier League squad here.