Milton dislocated his right knee after taking a vicious shot in a game against USF last Friday ... and there was some worry that the injury was so gruesome, he might lose his leg.

But, Milton's parents said in a statement that while there is nerve damage and he will later require reconstructive knee surgery ... blood flow has been restored to the leg.

"We want to thank the doctors and nurses at Tampa General Hospital and the University of South Florida and UCF medical staff and athletic trainers for their teamwork and prompt attention to McKenzie’s injuries," Milton's parents wrote.

"His blood flow has been restored to his right leg and his nerve is injured but intact. He is recovering and healing and is receiving the best medical care."

Mark and Teresa Milton added, "McKenzie and our entire family are so touched and grateful for the prayers, support, and well wishes. McKenzie is in good spirits and has a very positive attitude.”

UCF plays next in the American Athletic Conference Championship Game against Memphis on Saturday ... and Milton's family says the QB will be cheering them on.