Lock Skelton came off the field early in the second half of the 65-3 win over Uruguay on Sunday with what turned out to be a pectoral muscle injury, while number eight Palu was withdrawn at halftime with a hamstring strain.
Scans on Monday ruled them out of the tournament and they were replaced in the squad by hooker James Hanson and lock Sam Carter.
"Very few players have the opportunity to play for the Wallabies, let alone at a Rugby World Cup, so from that perspective I'm really gutted for them," coach Michael Cheika said in a news release.
"From a team perspective, they both play important roles in the side and it is disappointing that we need to replace players in our squad.
"Both James and Sam have been part of the team at various stages this season and I am confident they will be able to step up and grasp the opportunity they have been given."
Australia have won both their Pool A matches, against Fiji and Uruguay, but face a major test on Saturday against an England side stinging from a last-gasp loss to Wales.
The loss of 255 kgs of forward muscle will be felt and Skelton's proven ability to counter the rolling maul will be a particular loss given the popularity of the catch-and-drive as an attacking weapon at this World Cup.
Palu's injury could mean the end of his test career with the number eight three caps shy of the 60-test threshold to remain eligible when he moves to Japan later this year.
The 33-year-old started in a second string side against Uruguay but would probably not have played in the England match given the success Cheika has enjoyed with openside flankers David Pocock and Michael Hooper in his back row.
Skelton, whose size compromises his effectiveness at the set piece, was likely to remain one of Cheika's 'finishers', the replacements he expects to make an impact off the bench.
The rangy Carter would probably have made the squad ahead of Dean Mumm had he not suffered knee damage playing Super Rugby in late May and been sidelined for three months.
Hanson would have considered himself unlucky not to have made the initial squad but Cheika decided to take only two hookers, captain Stephen Moore and Tatafu Polota-Nau, in what was seen as a risky move.
Both Carter and Hanson played off the bench in Australia's final warm-up match against the United States with the former finishing the game at number eight.
(Reporting by Nick Mulvenney and Ian Ransom; Editing by Sudipto Ganguly)
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