The 33-year-old's future at the club was in doubt as his previous deal was set to expire this summer but the centre-back will now remain at Stamford Bridge until the end of next season.
"I'm delighted to have signed an extension to my contract with Chelsea taking me into my 20th year with the club," Terry told the club's official website.
"I'd like to thank the fans and club for their continued support, and the manager who was instrumental for me the last season."
"Both Chelsea FC and John have been clear throughout that we wanted his outstanding career at the club to continue, and it is important the matter has been concluded so soon after the end of the season, allowing us to look forward to and plan for 2014/15."
Terry made 47 appearances in all competitions under Jose Mourinho last term but could not stop Chelsea ending the campaign without a trophy, with the club finishing third in the Premier League and being eliminated by Atletico Madrid in the Champions League semi-finals.