Manager Jose Mourinho confirmed the news on Friday, with Terry set to move into an 18th season as a first-team professional at Stamford Bridge.
"John accepted that we go year-after-year, with a smile," the Portuguese said of the 34-year-old.
"He accepted the challenge and he won it and he is winning the challenge and the right to get one more year.
"That is what the club wants, that's what John wants and that is going to happen."
The centre-half made his debut in 1998 and has gone on to rack up the third highest number of appearances in Chelsea's history.
Terry's honours include three Premier League titles, five FA Cups and one UEFA Champions League crown.
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