Jackett, who stepped down as Millwall manager earlier this month after five-and-a-half years in charge, succeeds Dean Saunders at Molineux.
Saunders lost his job at the end of the season after failing to prevent the club slipping into League One with back-to-back relegations.
Jackett will face the press on Monday, but he told the Wanderers website: "I am both proud and delighted to have been appointed head coach at Wolves.
"I am really looking forward to the challenge ahead."
Wolves must pay Millwall compensation for Jackett, and a statement on the London club's website confirmed a deal has been agreed.
The statement continued: "Everybody at Millwall Football Club would once again like to thank Kenny for his fantastic contribution at The Den and wish him the best of luck in his new position."