The former England manager resigned from his position after Terry was stripped of the captaincy by the Football Association in February 2012, following allegations the Chelsea captain had directed racial abuse towards Anton Ferdinand the previous year.
Terry was acquitted of the charge following a trial in July 2012 but was banned for four matches and fined £220,000 by the FA for “using abusive language related to colour” a few months later.
By that point, however, Terry had already announced his international retirement.
He retains the captain’s armband at Chelsea and has been pivotal in their push towards this season’s Premier League title, and Capello, who is currently manager of the Russian national team, says the 34-year-old is still one of the best defenders in England.
Despite his praise, Capello admitted the chances of Terry ever being recalled into the England team were slim.
“He is one of the best. [England] haven’t got a lot of defenders but they sometimes have problems,” Capello said.
“It’s better to have a player like John Terry than not have him. But I don’t think he has the chances to play with the national team any more.”
Of the incident that led to his resignation, Capello added: “[The FA] decided he could not play with the national team and I didn’t understand because he was not guilty.
“When it happened I said to [then FA chairman David Bernstein], ‘You decided he’s guilty? No, he’s not guilty’.
“I fought for this and they said, ‘No, you can’t decide about the player, you need to wait for the court decision and everything’. I said, ‘Why have you decided before I’ve asked you?”‘