Ancelotti was fired last month after his second season at Stamford Bridge ended without a trophy, leaving the club searching for the seventh manager of Roman Abramovich's eight-year reign.
The Blues would not have to pay compensation to hire Hughes after their former striker resigned as manager of west London rival Fulham on Thursday after a season in charge with his contract about to expire.
The 47-year-old Welshman, who played for Chelsea between 1995 and 1998, has also managed his national team, Blackburn and Manchester City.
Terry said that Hughes has proved his quality as a manager and is ready to take the Chelsea job.
''He's someone that hopefully the club will be talking to,'' Terry said Friday while on England duty. ''If it's him he will be welcomed by the players ... I know Mark and his background staff. The understanding of the club and what it means to the supporters will come naturally to those guys.''
But Terry has also been in contact with Hiddink, who has remained as a Chelsea adviser since winning the FA Cup in 2009 while caretaker manager - a role he combined with coaching Russia after Luiz Felipe Scolari's sudden departure.
The 64-year-old Dutchman is currently employed by Turkey and remained tightlipped about the Chelsea job as he prepared for a European Championship qualifier on Friday night against Belgium.
''We had a great time under Guus, he would be welcomed back,'' Terry said. ''He came in for a short space of time and we won the FA Cup under him. I have great memories of him, someone I have been in contact with since he left the club. The players completely respected him. He knows the players inside out as well.
''If it is to be him, then great, or whoever it is, the players will naturally get on with it and work very hard under the new manager.''
Terry has managerial ambitions of his own one day.
''I'm doing my coaching badges at the moment but that is a long, long way away,'' the 30-year-old center back said. ''I feel I've got an awful lot of games left in me. I've got three years left on my Chelsea contract and am looking to stay at the very top for as long as possible.''
Rob Harris can be followed at www.twitter.com/RobHarrisUK