Dortmund, champions in 1997, visit Atletico for their first-leg clash on Wednesday, with Diego Simeone's side having won two of their last three matches against the German club in European competition.
"Atletico have evolved a lot in attack, and it is a great challenge for us. We know we can't make mistakes," Terzic told reporters on Tuesday.
"They are in a position to impose their style of play and we must rise to the occasion.
"Atletico's success is well known, and they have implemented a new art of defending. It is difficult for any team in the world to deal with."
Dortmund last reached the semi-finals in 2013, with Terzic determined to prove that his side belong there once again.
"Some guys have left us in recent years to find their fortune in the top-flight elsewhere," he said. "We now want to show that you can also reach the semi-finals of the Champions League with Borussia Dortmund."
Captain Emre Can was supposed to be sitting alongside Terzic at the press conference but was replaced due to illness by midfielder Felix Nmecha.
"He's doing pretty well so far," Terzic said of Can.
"He felt slightly ill this morning prior to departure. We'll therefore give him a bit of a rest today – in front of you and on the pitch. We're confident that he'll be able to feature tomorrow."
Dortmund were in a decent run of form, with five wins in a row in all competitions, before a 1-0 loss to Stuttgart on Saturday.
"We are satisfied with the intensity we have achieved in recent matches, but we have to maintain it," Terzic added.
"In their (Atletico's) stadium it won't be easy, but we hope we can pass the test and progress.
"We know how they fight and what a good team they are, but we are ready to show our best, and we must play as a team."
