The 22-year-old will undergo knee surgery in Chicago, with a timetable for his return set afterward.
"Injuries are tough, but Charles is an extremely hard worker and will be back stronger than ever," said Pensack. "He had a series of outstanding workouts lately and has helped himself. Charles will continue that momentum when he returns to action."
Matthews was projected to go in the second round as a high-upside defender.
He averaged 12.2 points, five rebounds, and 1.4 assists on 43.1 percent shooting during his junior year with the Wolverines.
The NBA draft takes place June 20.