Terry, 31, is accused of calling Anton Ferdinand a "f****** black c***" during a Premier League game on October 23 last year.
He denies a racially aggravated public order offence, and claims he was sarcastically repeating the slur that Ferdinand mistakenly thought he had used.
Yesterday Cole, also 31, told Westminster Magistrates' Court: "I think we shouldn't be sitting here."
He said while racism should never be tolerated, repeating what you thought someone said was "completely different".
Cole said: "If I repeated something that I thought you said, that's totally different than if someone just says something."
The court was read a statement from former Chelsea manager Jose Mourinho, who denied Terry was a racist.
Mourinho, who manages Spanish champions Real Madrid, said that, when he was Chelsea boss between June 2004 and September 2009, Terry had an excellent relationship with all the players regardless of ethnicity. Terry also championed the FA's anti-racism campaigns.
Mourinho said: "I never once witnessed any demonstration of racism or racial abuse or behaviour. I am certain that John Terry is not a racist."
Several players – including Frank Lampard, Fernando Torres and Petr Cech – had signed copies of a prepared statement that said: "I have never heard John Terry use any form of racist language and have never heard any suggestion that he may have done so."
Chelsea chairman Bruce Buck also praised the defendant's character.
He said: "I would say, and other people at Chelsea would say, he has an almost uncanny mental strength that when there are some bumps in his personal life he is able to go on the football field and do his job as though nothing is going on.
"Other people have it, but I have never seen it like John Terry has it."
Earlier, the court heard Cole describe Terry as "a close friend", who had been his England and Chelsea teammate for six or seven years. But he said there was a "conflict" because he is also friends with Ferdinand and his brother Rio.
He was asked by George Carter-Stephenson, QC, for Terry, about being asked to make a statement to the FA as part of its investigation into what happened.
The statement was not read out in court because it did not form part of the evidence in the case. Mr Carter-Stephenson said: "Did you want to get involved in the situation?"
Cole answered: "No."
The barrister asked: "When you made the statement, what was in your mind?
Cole replied: "The FA summoned me to do it."
Mr Carter-Stephenson continued: "Did you feel there was any conflict?"
Cole said: "Yeah. JT is my teammate and friend, Anton and Rio and his family, I've known for a long time."
Cole said that on the day of the match at Loftus Road he saw Ferdinand make a fist gesture to imply sex and could see him saying something.
He did not hear Terry say anything in reply to the goading, the court heard.
After the match, Cole was present when Terry asked Ferdinand what had happened.
"I think John said 'did you think I called you a black c***, did you think I was being racist?' Then I said, 'did you think John was being racist?' Anton said: 'No, no.' "
The two players shook hands and went their separate ways.
The trial continues.
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