Xavi has spent his entire professional career at Camp Nou and made his 700th appearance for the Catalan club in Thursday's Copa del Rey win over Getafe.
However, the Spain midfielder, whose contract expires in June 2016, has been linked with a move to MLS franchise New York Red Bulls, who Henry joined from Barca in 2010.
However, Henry believes the 33-year-old would be best served by spending the remainder of his playing days at Barca.
"Xavi can do whatever he wants," Henry said at a promotional event for Puma in Barcelona on Friday.
"For me, given everything he has done for football and Barcelona, he should stay there and spend the rest of his life at Barca.
"Xavi can play in the MLS, in France, England, or in my neighbourhood. I think he's an incredible player. People just don't realise what Xavi has done on the pitch."
Henry also stressed his view that Franck Ribery, who won the treble with Bayern Munich last season, should have been awarded the 2013 FIFA Ballon d'Or ahead of Real Madrid's Cristiano Ronaldo.
"In France everyone wanted Ribery to win it. I thought he was going to win it because he played very well last year and won almost everything," the Frenchman added.
"I have to admit that he was my preferred choice. I wanted him to win it as much as I wanted Messi to win it four years ago."
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