The 20-year-old Portuguese attacking midfielder links up with boss Nuno Espirito Santo after spending last season on loan at Porto.
Jota is 12-months into a five-year contract at Atletico and becomes Wolves’ 12th signing of the summer.
“I am very excited,” he told the club’s official site. “Wolves is a huge club and an historic club. It is always a goal for me to play in England and this is a good opportunity for me.
“It is good for me to work with Nuno again because I know him and worked with him last year.
“I have also worked with some of the other players here as well. That will help me settle in here.”
Wolves have already broken their transfer record this summer with the £15million signing of Ruben Neves from Porto.