Having been chosen for Australia A off the back of an eight-wicket haul in the Sheffield Shield final, Holland is a likely inclusion for Galle opposite Nathan Lyon, as the pitch is expected to take plenty of turn.
"Steve injured his right hamstring while chasing a ball in the field during the second session yesterday," team physio David Beakley said. "Initial assessment indicates a moderate grade hamstring injury which means it is highly unlikely that he will be available for the remainder of the Test series.
"Steve will remain with the squad in Kandy until the end of the Test and will undertake imaging on the injury upon his return to Australia."
Holland has been Victoria's second spinner behind Fawad Ahmed in recent times, but has specialised in bowling well on helpful pitches whenever the Bushrangers have chosen two tweakers. He has toured with Australia once before, on a 2009 ODI tour of India.
"It is incredibly disappointing for Steve to get this injury and I really feel for him," national selector Rod Marsh said. "He was bowling well in the Test and had caused some trouble to Sri Lanka's top order.
"The selectors have decided to go for a like-for-like replacement for Steve, in Jon Holland. Jon had a good end to the Sheffield Shield season and is currently in Brisbane with Australia A as they prepare for a four-day match against South Africa A.
"He will be on a plane as soon as possible and is a strong chance to make his debut in the Galle Test."
An injury to Ashton Agar had been the cause for Holland's call up to Australia A, in addition to his exceptional record when called upon by Victoria. In three Shield matches over the past two seasons he has claimed 22 wickets at 16.41. Holland's place in the Australia A squad will be taken by Glenn Maxwell.
The Australia A captain Peter Handscomb spoke warmly of Holland, a Victoria team-mate. "Awesome to see a Victorian get called into the Australian squad," he said. "Jon's been toiling away for years, he's been up there with the best spinners in the country for a long time now, and it's great to see him get that opportunity. I have no doubt he'll take it with both hands and do really well over there."