Valverde, third overall in 2015, skidded into a safety barrier after losing control of his bike on a wet left-hand corner on the 14-km course in Duesseldorf.
The 37-year-old was treated by race medics on the spot before being taken to hospital where he was diagnosed as suffering a fractured kneecap and ankle as well as suffering a deep wound to his tibia.
Valverde has had a sterling start to the season with victories in the Liege-Bastogne-Liege and the Volta a Catalunya and was expected to feature strongly at this year's Tour.
"At first we thought it was just a crash like it happens often, but when we saw that he could not get up, we knew it was serious," said sports director Jose Vicente Garcia. "It is a sad day for us."
Valverde and Quintana were seen as a formidable double act on this Tour, but the Colombian, second overall in 2013 and 2015, will now have to make do without the help of the Spanish veteran.
Doctors are scheduled to immediately operate on his keen with his return home unspecified. He is unlikely to return to racing during the current season.
