Multiple published reports revealed the injury on Monday, which will take him out of action for an extended amount of time. Though it hasn't been officially revealed, the injury is suspected to be a to his ACL, per MMAWeekly.com. He's currently in Las Vegas coaching opposite of Faber on "The Ultimate Fighter: Live", which was to lead to the title fight on July 7.
It's not yet known whether Faber will remain on the card, or whether Cruz will be kept on to continue coaching on TUF. When Tito Ortiz was forced out of a bout with Chuck Liddell after TUF season 11, Rich Franklin was brought in to finish out the season. At this point, nothing is set for the immediate future.
Penick's Analysis: If it is indeed a torn ACL as is the belief right now, Cruz is going to be out of action for an extended period of time. Considering he has not fought since last October, and the knee injury will not allow him to return until likely 2013, I'd expect the UFC to set up an Interim Bantamweight Championship bout between Faber and either Michael McDonald or Renan Barao at UFC 148. McDonald, fresh off a knockout over Miguel Torres, may be the first choice for the UFC at this point. Either fighter would work, though. This severely damages an already under-performing season of TUF, and I'm sure the UFC is scrambling to figure out what they're going to do with the show, with Faber, and with the UFC 148 co-main event.
UPDATE: UFC President Dana White has confirmed reports, saying on Twitter "It's true Cruz blew his ACL. Stay tuned for more info."