The experienced midfielder has signed a two-year contract after Wolves accepted an undisclosed offer.
Henry, 30, becomes Rangers' third summer signing as Harry Redknapp reshapes his squad ahead of this season's Championship campaign.
Danny Simpson and Richard Dunne have already arrived, and Redknapp told the club's official website: "We're trying to change the club around a bit.
"Karl's another piece of the jigsaw that can hopefully help us build a team that can challenge for promotion.
"He's a combative midfielder and you know what you're going to get from him week in, week out. He'll be ready for the Saturday, Tuesday slogs and you know you can rely on him.
"Like Danny Simpson and Richard Dunne, he's been promoted to the Premier League before so he knows what's needed."
Henry said: "Harry Redknapp being manager was a massive pull and a big attraction. I spoke to him and hearing where he wants to be I jumped at the chance of joining the club.
"I have been promoted to the Premier League before and played for a few years in the top-flight, which I thoroughly enjoyed.
"The Championship is a tough league and it sounds like Harry wants to bring in the kind of players that will get this club out of the division which is fantastic."