UFC President Dana White announced the injury on Instagram:
Holloway will take on Khabib Nurmagomedov on six days' notice as the headline event for the April 7 pay-per-view.
Ferguson's "ligament tore completely off the bone" late last week, per Okamoto.
Ferguson won the interim lightweight championship last October with a win over Kevin Lee via submission. He replaced Conor McGregor, who has not competed in UFC since taking on Floyd Mayweather Jr. in a boxing match last summer.
The matchup against Nurmagomedov was set to create a new undisputed champion, and as White announced, that title is still on the line even with Holloway stepping in.
Holloway, the current featherweight champion, is coming off back-to-back knockout wins over Jose Aldo to become the undisputed winner at his weight class. He hasn't lost since 2013 in a battle against McGregor, although moving up from 145 to 155 could be a challenge, especially with short notice.
Meanwhile, Nurmagomedov enters the upcoming bout with an undefeated 25-0 record and could finally get an opportunity to bring home a belt.
Luke Thomas of SiriusXM provided a quick breakdown of the fight:
Luke Thomas @lthomasnews
There's a case to be made Holloway is a bad match up for Nurmagomedov. Some will scoff at the idea, but he has lights out TD defense and, more importantly, excels at that defense along the fence. Add in killer cardio, jab, ambidextrous stance and more. This fight is compelling.
He and Ferguson have been scheduled to fight several times in the past, with the Russian most recently backing out because of problems managing weight last March for UFC 209. Chamatkar Sandhu of USA Today noted the problems with getting these two together:
Hopefully, Holloway represents a quality replacement worthy of the PPV Saturday.