Feeling he had "ostracized a bunch of fans" with his previous album Physicist (2000), Townsend felt he had the chance to make a more personal and honest record. Townsend was inspired one morning while driving across Canada with his band, and looked to write an "introspective" album dedicated to his homeland. He produced and recorded Terria, a "highly illustrated stream-of-consciousness" album, with Gene Hoglan on drums, Craig McFarland on bass and Jamie Meyer on keyboards. The artwork of the album was handled by Travis Smith who considers his work on Terria his best work along with his work on Katatonia's Last Fair Deal Gone Down.
Terria has been described as "melodic and atmospheric", with elements of pop and ambience alongside Townsend's trademark heaviness.Terria features musical themes explored in Townsend's previous albums, such as Ocean Machine: Biomech. However, it is more restrained, "using silence as part of the music". Townsend cited Ween's White Pepper as an inspiration for the album.
Terria was released in November 2001 on Townsend's independent label, HevyDevy Records. It is distributed in Canada by HevyDevy, in Japan by Sony, and in Europe and North America by InsideOut. A limited-edition two-disc version was also released, which included the bonus song "Universal", as well as a multimedia element containing footage of a Devin Townsend concert in Japan and audio commentary about the album.