Stotts was a second round selection of the Houston Rockets in the 1980 NBA Draft, but he couldn't find a place on the team. He began his professional playing career in Italy before joining George Karl's Continental Basketball Association (CBA) team, the Montana Golden Nuggets, in the early 1980s. He starred for the team for 3 seasons. He then returned to Europe for several seasons, playing in Spain (Estudiantes) and France.
After retiring as a player, Stotts joined Karl’s coaching staff as an assistant with the CBA’s Albany Patroons in 1990-91. During his first year, he helped lead the Patroons to an all-time CBA-best 50-6 record. Stotts then coached the CBA’s Fort Wayne Fury for one season before rejoining Karl as part of his staff on the Seattle SuperSonics in the NBA. He then moved with Karl to the Milwaukee Bucks in 1998
In 2002, he decided to part ways with Karl and joined the Atlanta Hawks as an assistant coach. He was promoted to head coach 27 games into the season after Lon Kruger was fired. Stotts led the Hawks to a 52-85 record before he was let go and returned to the assistant coaching ranks with the Golden State Warriors.
He was hired as an assistant coach for the Dallas Mavericks shortly after Rick Carlisle was hired as head coach in September 2008. He was credited for coordinating the Mavericks' offense that was one of the most efficient in the league in 2010-11, when they won the NBA title.
Terry Stotts in action as coach of the Portland Trail Blazers, 2015.
The Portland Trail Blazers hired Stotts as their head coach on August 7, 2012. At the time, his NBA coaching record was 115–168. The Blazers went 33-49 in Stotts' first year, losing their final 13 games to drop out of the playoff race. 
In Stotts' second season with the Trail Blazers, he coached the team to an overall record of 54-28. They beat the Houston Rockets in the first round of the NBA Playoffs with a buzzer beater three point shot by Damian Lillard, to advance to the second round. Though they fell short to the eventual NBA champion San Antonio Spurs in the second round ultimately losing in five games 4-1.