The former England defender, 33, was out of contract this summer but has extended his stay at Stamford Bridge by another season.
"Chelsea Football Club is delighted to announce John Terry has signed a one-year extension to his contract," the club said in a statement.
"I'm delighted to have signed an extension to my contract with Chelsea taking me into my 20th year with the club," Terry said.
"I'd like to thank the fans and club for their continued support, and the manager who was instrumental for me the last season."
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."
Terry came through the youth ranks at West Ham before joining Chelsea as a schoolboy, and has made over 600 appearances for the club.
He also made 78 appearances for England before his international career ended in the aftermath of the FA finding him guilty of racially abusing QPR defender Anton Ferdinand.
Terry's future was unclear, with the London-born centre-back tipped to move abroad after 19 years at Chelsea.
Team-mate Ashley Cole is expected to leave the club though, with his contract also winding down.
Unlike Terry - who made 47 appearances this season - Cole lost his place in Jose Mourinho's starting XI and is expected to move abroad.
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