Grant told Terry, who is nearing full fitness following minor knee surgery, that he would not be permitted to join the national team unless he has played for his club.
He said: "John would like to play football 24 hours a day if he could, but he is not fit.
"They will miss him as a great defender and a great leader. I spoke with Steve McClaren.
"If John was available I'd have been happy for him to play, but he isn't. It's the right decision."