Terry will lead England out against Wales in next week's European Championship qualifier after succeeding Rio Ferdinand with immediate effect.
There had been confusion over whether Terry would remain captain beyond that game with Capello apparently having misunderstood the meaning of the word 'permanent', and the Italian has faced heavy criticism in the English tabloid press over the way the affair has been handled.
Speaking at a Wembley media, though, he has now reiterated that the Chelsea skipper will be taking the role full-time.
"I decided John Terry would be the captain for this game [against Wales] because, after the game in Copenhagen, the way the armband was moved around was upsetting for him," Capello said.
"Also, I said my decision would be the day before the [Wales] game because I wanted to speak with the players, I wanted to speak with John Terry. I also knew the England doctors spoke with the doctors of Manchester United and Liverpool and I knew that Rio and Steven Gerrard were injured.
"But I have decided that John Terry, after one year of punishment, will again be the permanent captain. I think one year's punishment is enough. He was my first choice when I [initially] decided on the permanent captain."
The 30-year-old was stripped of the armband 13 months ago after an alleged affair with a former girlfriend of England team-mate Wayne Bridge.
Terry was first made the national team skipper under Steve McClaren in 2006, before being reinstated by Capello in 2008 after the Italian initally decided to share the duty between several players.