The 21-year-old left-hander, who was shut down in May while pitching at Triple-A, will have the procedure done by Dr. James Andrews on Thursday in Pensacola, Fla.
"It's not what you want to see out of your young players that you think have a bright future for you, but a lot of guys have had setbacks and went on to have great careers," Yankees manager Joe Girardi said. "He has an opportunity to heal up, get strong and be a factor after that. I'm sure it's frustrating for him and it's frustrating for us, but you have to make the most of it."
The Yankees signed Banuelos as an international free agent in 2008. He made 27 starts last season between Double-A Trenton and Triple-A Scranton/Wilkes-Barre, going 6-7 with a 3.75 ERA and 125 strikeouts in 129 2/3 innings.
This year, Banuelos compiled a 4.50 ERA in six Triple-A starts before he was sidelined. The club officially shut him down for the season in early August with what was labeled a bone bruise in his left elbow, an injury the Yankees did not believe would require surgery.
MLB.com ranks Banuelos fourth overall among Yankees prospects and 90th among all prospects.
Andrew Simon is a contributor to MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.