England's Farrell out of third Test
Saracens' Owen Farrell attends a training session at the Millennium Stadium in Cardiff, Wales, on May 23, 2014 - by Geoff Caddick
The first-choice pivot picked up the injury in Saturday's second Test and has failed to respond sufficiently to treatment.
First Test starter Freddie Burns along with Danny Cipriani and Stephen Myler who shared the fly-half duties in the mid-week game against the Canterbury Crusaders are all available options for the Test.
"The knee has been scanned and there is a strain there, It's disappointing for Owen as he was desperate to play in the final Test," Lancaster said.
"Fortunately we have three other fly-halves to call on and we'll make that selection call over the next few days."
England beat the Crusaders 38-7 for their first victory on tour after losing the first Test 20-15 and the second Test 28-27.