The club's website said Terry, 35, had agreed a new deal that would take him into a 22nd season at Stamford Bridge which he joined as a schoolboy.
"I am delighted to sign a new contract with the club. Everyone knows I'm Chelsea through and through," Terry said.
"I am looking forward to next season under the new manager and hopefully we can make it a successful one."
Terry's future has been the subject of much speculation after the club left the door ajar for him to stay on.
The club said the decision had been taken after talks between Terry, incoming manager Antonio Conte, owner Roman Abramovich and the club's board.
"We are delighted John will spend another year at the club. He has been the leader of the Chelsea squad throughout the most successful period in our history," chairman Bruce Buck said."
Terry has made 703 first-team appearances, 570 as captain, and has won every major honour with the club, including four Premier League titles and five FA Cups.
He was also capped 78 times for England.
(Reporting by Martyn Herman; Editing by Richard Balmforth)
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