Terry's contract, along with that of experienced duo Frank Lampard and Ashley Cole, was set to expire this summer.
The 33-year-old, who has captained Chelsea 490 times during his career, is understood to have originally been negotiating for a longer contract with the club he has been at since the age of 14.
But Chelsea have a strict policy of only offering one-year deals to players above the age of 30 and Terry, capped 78 times by England, has agreed to the 12-month extension.
Speaking to the club's official website, Terry said: "I'm delighted to have signed an extension to my contract with Chelsea taking me into my 20th year with the club.
"I'd like to thank the fans and club for their continued support, and the manager who was instrumental for me the last season."
Chief executive Ron Gourlay said: "We are very pleased John, who is an undoubted Chelsea legend, will continue to lead the team next season, as he has done for so many years with unrivalled achievement.
"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."
Despite his age, Terry made 47 appearances for Chelsea last season and was a key factor in seeing the club concede only 27 league goals - the best defensive record in the Premier League.
Terry has won 12 major trophies during his 16-year senior career with Chelsea, racking up 621 appearances for the club in addition to scooping a host of personal accolades in that time.
The first of his three Premier League titles came during the 2004/5 season where Chelsea also won the League Cup in the first season of Jose Mourinho's first spell in charge at Stamford Bridge.
Terry has also won the Champions League and the Europa League with Chelsea, in addition to the FA Cup on five occasions.