Terry wrote on Instagram: "After 23 incredible years as a footballer, I have decided now is the right time to retire from playing".
Terry, who earned 78 England caps, left Chelsea in 2017 after two decades at the London club.
He won five Premier League titles, had five FA Cup triumphs and claimed the League Cup three times with Chelsea.
The suggestion came from Scotland assistant manager Peter Grant, a former midfielder with the Bhoys, after news broke over the weekend that Aston Villa could be interested in naming the Northern Irishman as the replacement for Steve Bruce at Villa Park.
Here is Terry's career in pictures.
Henry, Belgium's assistant coach, has worked with Roberto Martinez during the World Cup and made it clear he wanted the top role in talks with the Aston Villa owners NassefSawiris and Wes Edens. New beginning and a new start and I wish you all the best in the next phase of your footballing career.
However, Faria could now be on the cusp of landing a senior managerial position of his own at Aston Villa, with the 43-year-old currently the second favourite in the betting behind Terry.
Reacting to reports that Henry and Terry are set to take charge of Villa, Keown said on BT Sport: "I can safely say that I never ever saw those two as a partnership".
"As a 14-year-old, I made the biggest and best decision: to sign for Chelsea".
Earlier in the summer, Terry was approached by Russian outfit Spartak Moscow and he also underwent a medical but apparently, turned down the contract at the last minute due to change of heart.
Henry's former Arsenal team-mate also feels bringing in Terry could be a smart move as the former Blue will be more aware of the surroundings at Villa Park than the Frenchman. I look forward to the next chapter in my life and the challenges in my head.