The 33-year-old club captain had an impressive season after being reinvigorated by the return of Jose Mourinho as manager.
Terry graduated from Chelsea's academy and made his first-team debut in 1998; next season will be his 17th in the senior side.
The defender, who joined the club age 14, has played 621 games for Chelsea, scoring 57 goals.
"I'm delighted to have signed an extension to my contract with Chelsea taking me into my 20th year with the club," he said.
"I'd like to thank the fans and club for their continued support, and the manager who was instrumental for me in the last season."