The 29-year-old Republic of Ireland international has made over 200 appearances for Wolves, but only seven of those have come under Kenny Jackett's rule this term.
Seasiders' caretaker-boss Barry Ferguson will hope Foley can bolster a defence which has kept just one clean sheet since November.
"With Tony (McMahon) being out through suspension, I don't like to play people out of position," Ferguson said. "The chairman gave me the go-ahead to go and try and get somebody, and Kevin was somebody I've known for a long time.
"I played against him when I was at Birmingham and I asked a few people about him as well, which I always do. They all came back with positive things and I obviously know what he can do on the pitch.
"He was at the top of the list - there was two that I was desperate to get in and he was one of them - and thankfully we got it through yesterday."
Wolves manager Kenny Jackett told his club's official website: "It's a great move for Kevin. Right-back has been a good position for us this season.
"The defence is doing very well and Sam Ricketts is currently in the team, Matt Doherty is back fully fit again and Ethan Ebanks-Landell has also moved across from centre-back and done very well too.
"Kevin hasn't done anything wrong to be honest - it is just players are ahead of him - and this is a good move for him and a fresh start to get out playing which suits both him and Blackpool."
Meanwhile Ferguson confirmed United States international Freddy Adu would not be offered any type of Blackpool deal.
He added: "I've got plenty of players in that position. We gave Freddy the facility to come in and train and he's played a few games, but I'm strong enough in that position."