The 28-year-old centre-back had been a solid performer for Palace since joining from Millwall in 2005, but fell out of favour after the arrival of Peter Taylor as manager.
"I'm really hungry to move on this season and to do well," he told the Wolves official website.
"I think I was attracted by everything to do with Wolves. The set-up, the training ground, the ground itself where I've played a few times, the size of the club and Mick McCarthy, who's done very well wherever he's been."
Darren Ward made a total of 69 appearances for the first team during his time at Palace.