The former England captain arrives at Villa Park having helped Chelsea secure the Premier League title in 2016/17 and left Stamford Bridge at the expiration of his contract.
Terry enjoyed a stellar career with the Blues, winning four Premier League titles, five FA Cups, three League Cups as well as the Champions League and Europa League.
After making his debut in 1998, the 36-year-old went on to record 713 appearances for Chelsea and skippered the London side on 578 occasions.
PFA Player of the Year award winner in 2005, Terry also won 78 caps for England and represented his country at the World Cup and at the European Championships.
“It’s a club I have admired from afar for many years – there are fantastic facilities at Bodymoor Heath, Villa Park is one of the finest stadiums in the country and there’s a good group of players here, with an experienced and successful manager in Steve Bruce.
“I can’t wait to get started now and look to help the squad achieve something special this season.”