Butler initially injured the shoulder during Sunday's win over the Orlando Magic and tweaked it again in the first half of Tuesday's win over the Sacramento Kings.
An MRI on Wednesday confirmed the strain.
"If he can [play in the All-Star Game], he'll participate," coach Tom Thibodeau said after Thursday's shootaround. "I guess we have to wait 'til then ... hopefully [the shoulder injury] will be short-term."
Butler's agent, Happy Walters, confirmed a Real GM report that Butler would be dropping out of Saturday night's All-Star Skills Challenge at Barclays Center. The hope is that Butler will continue to rehab his shoulder and be able to play limited minutes in Sunday's game.
In other Bulls injury news, veteran point guard Kirk Hinrich remains out because of a turf toe injury on his left foot.
Chicago's Championship Hopes Dwindling
Nick Friedell recaps the first half of the Bulls' season and explains why the window for Chicago's championship hopes may be closing.