The 25-year-old is understood to have suffered the injury in training and is expected to miss the rest of the season.
It is a savage blow for Vaughan, who has battled back from three separate surgeries to repair his anterior cruciate ligaments – twice on his right knee and once on his left – and faces going under the knife once more.
Vaughan is believed to have injured his left knee this time around.
Raith Rovers manager John McGlynn will now have to decide whether to dip back into the transfer market at this late stage to replace the sizeable void that Vaughan leaves.
The Kirkcaldy outfit have Matej Poplatnik, James Keatings and Ethon Varian to call upon as their No.9s from the current squad.
Raith are due back in action on Tuesday night when they face Ayr at Somerset Park.