The 24-year-old missed three weeks with the injury from rounds 12-14 and returned to face the Western Bulldogs and Sydney Swans, but the issue has resurfaced and surgery is now the best course of action.
It is a disappointing end to what had been a promising season for the former NAB AFL Rising Star winner.
Filling a defensive half-forward role at times, Palmer had averaged just under 17 possessions and five marks across his 11 games, kicking nine goals.
"Rhys has been struggling with this injury for a number of weeks, so we’ve made the decision to get his sesamoid (bone within a tendon) repaired,” GWS head of sports science John Quinn told the club's website.
“He can’t run at the moment so it's best to get it rectified now so he can be ready to resume full training with the rest of the squad for the pre-season."
Teammate Will Hoskin-Elliott (concussion) will undergo a test later this week after leaving the MCG on a stretcher late in Saturday's loss to Collingwood.
Defender Tim Mohr, one of the club's big improvers this season, also suffered concussion against the Pies and could return against Melbourne at Skoda Stadium on Saturday.
Adam Kennedy is expected to play following a head knock suffered in a goal-saving tackle in the same game.
Ruckman Andrew Phillips, who hasn't been able to add to his nine career games due to a recurring hamstring problem throughout 2013, is now listed as just one week away from a return.
Midfielder Anthony Miles faces another three weeks on the sideline with a foot injury.
James Dampney is a reporter for AFL Media. Follow him on Twitter @AFL_JD
