The 28-year-old has completed his move to Molineux after submitting a written transfer request earlier this month.
The two clubs agreed a deal on Wednesday and Clarke has now put pen to paper on a contract with Wolves.
The Sky Blues confirmed the move on their official website with a statement adding: "Coventry City Football Club would like to wish Leon all the best for the future."
Clarke's arrival at Wolves could well pave the way for striker Leigh Griffiths to depart Molineux for Celtic.
Clarke started his career with Wolves as a trainee in 2003 and made 83 appearances for the club in which he scored 15 goals.
He had loan spells at Kidderminster, QPR and Plymouth during his initial spell with Wolves before moving on to Sheffield Wednesday for a nominal fee in January 2007.
Clarke also spent time, either on loan or on a permanent basis, with Oldham, Southend, Preston, Swindon, Chesterfield, Crawley and Scunthorpe before joining Coventry on a free transfer last January.
After completing the move he told Wolves' official website: "I have played a lot of games now and feel like I have progressed. Having been here for so long when I was younger it feels right to be back again.
"Hopefully the team is going to continue to progress this season and do well.
"If I can make a contribution then hopefully I can be part of some success for a few years to come - you never know what could happen.
"I still feel I can score goals and at a higher level as well.
"But for now we've all just got to worry about this season and if we get to where we want to be look to progress next year."