Chelsea lie five points behind leaders Manchester United after throwing away three points against Spurs on Wednesday, making the clash at Stamford Bridge even more crucial for Terry's side.
"Sunday's a must-win game now. No question," Terry told The Daily Mirror.
"The disappointment at Spurs was that we threw a lead away and put the pressure on ourselves to have to win on Sunday against a very good side.
"If we had beaten Spurs, maybe we could have afforded to draw against Arsenal but not now. We are at home and there's added pressure on us to win."
Indeed, Chelsea have failed to beat any of the top seven in the Premier League this season, but Terry thinks that their opponents on Sunday are under as much pressure as they are:
"At the start of the season, when Jose Mourinho went and the new manager came in and we had injuries, everybody wrote us off straight away.
"That's suited us. It took the pressure right off us. As we come into the later stages, Arsenal haven't won in four games and maybe the pressure's getting to them."