Aragones approached Spain striker Jose Antonio Reyes, who like Henry plays for English club Arsenal, at Las Rozas and shouted in his face: "Some players have to see things more clearly.
"Tell that black shit that you are better than him. Tell him from me. You're the best."
The 66-year-old Spain coach, who is preparing his team for Saturday's World Cup qualifier against Belgium in Santander, later played down the incident. He said it had been a joke aimed at psyching up Reyes.
"I am a citizen of the world," Aragones told Radio Marca. "Some of my best friends are black, including those I had from childhood. The fact that I made a joke in order to motivate a player has nothing to do with being racist. I'm not a racist."
Reyes also said Aragones's comments were made in jest.
"He was just having a bit of a laugh and it was nothing important," the Arsenal forward told a news conference after the session.
"It was a moment's relaxation during a hard day of training. These are things that should be left on the training ground. Luis and myself know who we were talking about and there was nothing more to it."
Aragones is the most experienced coach in Spain, having sat in the dug out for 757 first division matches over a 30-year period.
He is famous for his fiery temper and outspoken comments and has made the headlines on several occasions during his career for public confrontations with players.
He took charge of the national team following Inaki Saez's resignation after Spain's disappointing performance at Euro 2004.
