Cunha, 23, will join the club from January 1 subject to work permit approval with an automatic permanent deal - reportedly worth a club-record Stg 43 million ($A77.5m) - to follow.
"Matheus Cunha will become Julen Lopetegui's first signing as Wolves head coach, joining on loan from 1st January, subject to work permit," a statement on the club's website read.
"The Brazilian international flew to the UK and completed his medical earlier in the week, finalising a loan move which will automatically become a permanent deal until 2027, should certain clauses be triggered."
The former Sion, RB Leipzig and Hertha Berlin forward joined Atletico in the summer of 2021 and scored seven goals in all competitions last season, but has struggled for playing time this term.
He helped Brazil win gold at the Tokyo Olympics in August 2021 - scoring in the 2-1 final win over Spain - and has since won eight senior caps. He missed out on the squad for the recent World Cup in Qatar.
"I'm really excited to be part of this group and to be part of this club - it's a big club,"Â Cunha told the club's website.
"I'm excited to play in the Premier League, to play in Wolverhampton. The most important point is that I'm happy like a kid.
"(Lopetegui's) a big coach, he has a big mentality.
"He told me about Wolverhampton having a big project and I believe in it a lot, and I believe in him."
Cunha will join former Atletico team-mate Diego Costa, who moved to the club in September, at Molineux.
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