The 33-year-old central defender has played more than 500 games for Chelsea, who he joined as a 14-year-old in 1991.
He has won the Champions League and Europa League, three Premier League titles, five FA Cups and two League Cups.
Terry played 78 times for England before announcing his international retirement in September 2012.
"I'm delighted to have signed an extension to my contract with Chelsea taking me into my 20th year with the club," he said,
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"I'd like to thank the fans and club for their continued support, and the manager (Jose Mourinho) who was instrumental for me last season."
Chelsea chief executive Ron Gourlay added: "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."
Media reports said Chelsea midfielder Frank Lampard will also sign a new deal, although the future of a third experienced England international, Ashley Cole, is less clear.
Mourinho said last week that he hoped all three players would stay.
(Reporting by Steve Tongue, editing by Ed Osmond)
