Terry was stripped of the captaincy this month following newspaper revelations that he had had an extra-marital affair with the former partner of England team mate Wayne Bridge.
"From here to the World Cup he will not be the captain, and not while I'm England manager," Capello told reporters in a briefing ahead of Wednesday's friendly with Egypt.
However, Capello made it clear he still wanted the Chelsea skipper to lead by example on the pitch for England.
"John Terry is a leader and will be without the armband. I told him to be the same. I don't think the players have lost respect for him and the spirit will be the same.
"I asked always the captain to set an example for young children and fans. I told him (that). I spoke with him and was very happy because he understood everything.
"I hope this is the end of these stories. But I didn't ever consider taking him out (of the squad)," Capello was quoted as saying in The Independent on Sunday.
Liverpool captain Steven Gerrard is set to lead the team out against the African champions at Wembley and Capello added with a smile: "I think it's not a good moment to be England captain".
Bridge this week said he did not want to be considered for selection and would not go to the World Cup but Capello has not given up hope the Manchester City player may change his mind.
"We have three months to change the decision," Capello told reporters. "I opened the door to all players and now it is open in future for Wayne Bridge."
Asked if he agreed with the left back that it was in England's best interests for Bridge to rule himself out, Capello said: "No. It's (like an) injury now."
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