The 19-year-old has been photographed taking the legal high from a balloon, with the picture published in the national press on Thursday morning understood to have been taken a year ago.
Grealish follows Liverpool winger Raheem Sterling and West Brom striker Saido Berahino in being pictured taking the legal high.
Grealish starred in Sunday's 2-1 FA Cup semi-final win over Liverpool before the photograph emerged and Sherwood said he had spoken to the player.
"I'm not pleased obviously, I spoke to Jack first thing this morning as he came in, I explained to him his behaviour can't be tolerated by the football club, we can't condone that behaviour, but, as I said about Raheem last week, he's a young man, he was even younger a year earlier when the picture was taken," Sherwood said.
"It doesn't matter how young he is, he is now in a responsible position as a professional footballer, he's got to make sure it won't happen again, he's assured me it won't."
Grealish, who is yet to decide whether to represent the Republic of Ireland or England at international level, will be in the squad for Saturday's Barclays Premier League trip to Manchester City and Sherwood believes it will be a learning curve for the star, who has not been fined.
He said: "I think he's a fantastic talent, he's willing to work hard at it, he will be a big player for the future of Aston Villa Football Club.
"I'm not worried
No
To be honest there is only one form of discipline, that's self-discipline, that's what really matters
Jack has to take that on board now
This is an eye-opener for him, he has to realise he has to be very careful who he can trust out there."
Meanwhile, Ciaran Clark (knee) Nathan Baker (knee) and Alan Hutton (ankle) are out for the trip to the Etihad but Gabriel Agbonlahor could recover from his hamstring injury and Aly Cissokho (groin) and Philippe Senderos (thigh) are in contention.
Source : PA
Source: PA