The 21-year-old was set to travel with the squad to Denmark on Wednesday but aggravated the injury while playing in Sunday's 2-0 victory over Norway.
Manager Stuart Pearce now has a squad of only 22 players to choose from.
"It's unfortunate for Kieran, but he went for a scan on Tuesday and is in a medical boot," Pearce said.
"We have to deal with setbacks every now and again but we are fortunate to have a squad and a staff with previous tournament experience."
Gibbs, who has made 15 appearances for the Under-21 team, is the fourth full international to be ruled out of Pearce's original 40-man squad.
Liverpool striker Andy Carroll failed to recover from injury in time to make the final 23, while Gibbs' Arsenal team-mate Jack Wilshere withdrew through fear of exhaustion.
Manchester City full-back Micah Richards also pulled out after picking up a hamstring injury.
The European Championship begins on 11 June, with England playing Spain in their first group-stage game on Sunday before matches against the Ukraine and the Czech Republic the following week.
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