The 25-year-old Victorian left-armer was rated one of the two best Test spin options in the country by national chairman of selectors John Inverarity last week, having out-bowled Test incumbent Nathan Lyon during the Australia A tour of England earlier this year.
However he broke down with injury to his bowling shoulder while throwing from the outfield while playing club cricket last weekend.
A Cricket Victoria statement on Thursday said Holland had reconstructive surgery on his shoulder on Wednesday and was expected to miss the rest of the season.
Holland also had a reconstruction on the same shoulder in early 2010.
"It's disappointing news but I have come back from this before and I believe I still have a lot of good cricket ahead of me," Holland said.
"I was hoping that it may have been better news, but it wasn't to be. I'll commence my rehabilitation and I'll work hard to come back."