The England captain believes Carragher, who retired from internationals last year, compares favourably with any defender in the game today.
"I personally think that over the last four or five years he has been the best defender in the world," Terry told the official Liverpool website.
"He's been consistent in the Premier League, he's never injured, he always gives 100 per cent, he's a good reader of the game, he's quick and is good in the air.
"He has everything you need to be a world class defender and you also have to look at what he's achieved in the Champions League with Liverpool."
Terry is also full of admiration at Carragher's landmark of playing 500 matches for his home-town club.
"To reach 500 games is a huge achievement," said Terry. "I've been at Chelsea a long time and am still nowhere near that total. He is a credit to himself.
"For a centre-half, he's also great on the ground as well. He knows when to get the ball away, when to clear his lines.
"He also never stops talking to his team-mates and that's a great thing to have. Even when you watch games on the television it's always his voice you can hear."