The Blues legend believes the 19-year-old would settle in with the club’s academy graduates, who have impressed under Frank Lampard
The Blues have been heavily linked with the England international, who has emerged as one of the brightest young players in Europe since his breakthrough in Germany.
Sancho, 19, joined the Bundesliga side from Manchester City in 2017 and has gone on to score 31 times and made 36 assists in 90 appearances.
The winger has had run-ins with the Dortmund bosses this season, however, which have sparked rumours that he is open to returning to England.
But Chelsea are not the only team interested, as Manchester United are reportedly determined to sign him, while Liverpool have also been linked.
And Terry believes Chelsea should do their best to lure him to Stamford Bridge as he would thrive alongside the Blues’ young stars Tammy Abraham and Mason Mount.
“I think the young lads have shown their potential,” he told Frank Khalid of Chelsea’s latest academy graduates.
“We spoke at the start of the season about the likes of Tammy and Mason coming into the squad and they’ve shown that they’re capable of playing.
“I think Sancho is one of the best young players in the world at the moment, so he’d be a great addition to Chelsea’s squad.
“It would make us better as well, but the ones that have come through, the Billy Gilmours, Tammy, Mason, Reece [James], it’s endless isnt it? There have been so many positives this season.
“So I think every Chelsea fan, since I came through the ranks, that’s all Chelsea fans wanted to see: the youth team players and the younger generation coming through and making their first team debuts. We’ve seen that in abundance this year.”
Chelsea have relied on their youth system to raise the standard of the squad this season as the club navigated last summer’s transfer ban.
And former captain Terry is delighted to see them shine under former team-mate Frank Lampard.
“It’ s been incredible because we said there was no one better, to give Lamps the job,” he added. “With [assistant manager] Jody Morris as well, he has someone who knows the younger players and works with them at the youth team and U-18 level as well.
“I think it’s been a good mix. I think the expectation has been excellent because the group that they’ve had this year have done really, really well.”