Terry joined Villa as a player in 2017, signing a one-year contract and playing 32 games for the club that season.
A year later he returned to the club and became an assistant head coach under Dean Smith, impressing in the role.
Terry, however, has stepped down ahead of the new season as he wants to spend time with his family and he also has his heart set on becoming a manager one day.
“It has been a tremendous honour and privilege to have spent these last three years at Aston Villa, but I feel now is the right time to make the extremely difficult decision to move on,” Terry said.
“I want to be as respectful to the manager and everyone at Aston Villa as I can and, having given my future serious consideration over the summer, I genuinely don’t feel it is fair to move into a new season without being certain of seeing that through.
“My immediate plan is to spend some quality time with my family and, thereafter, hopefully take up some invitations to visit clubs and managers around Europe to develop my aim and objective of becoming a manager.
“It has always been my ambition to move into football management and, providing the right opportunity presents itself, I feel ready to take up such a challenge.
“I would like to thank Christian Purslow and our owners, Wes Edens and Nassef Sawiris, for believing in me and giving me the opportunity.
“And I will forever be indebted to the Gaffer for giving me the opportunity to start my coaching career at such a wonderful club. I have loved every minute of it and learnt so much.
“I can’t thank Dean enough for the support and guidance he has provided me with and I’m sure he will continue to lead the club from strength to strength.
“Finally, I would also like to thank all the players and staff and wish them all the very best for the season ahead and say a huge thank you to the wonderful Aston Villa fans for their support.”
Manager Smith added: “I’m disappointed to lose John as part of my coaching staff but fully understand and respect his decision.
“John has played a huge role in the success the club has enjoyed over the last few years and has been very supportive of myself throughout that period. I have no doubts he will go on to be a first-class manager in his own right and wish him well for the future.”