The move comes after McClaren led FC Twente to the Dutch title for the first time in their history. He becomes the first Englishman to achieve such a feat on the continent since Sir Bobby Robson in 1996 with Porto.
'I had two fantastic years at Twente with a fabulous end but I promised my wife and kids I would stay there for two years. Now we all will move to Germany,' McClaren said in Dutch newspaper TC Tubantia.
Superb triumph: Steve McClaren and his Twente team celebrate after winning the Dutch title
The 49-year-old replaces interim coach Lorenz-Guenther Koestner, whotook over at Wolfsburg from Armin Veh midway through the season.
McClaren is known to have attracted interest back in Britain - but he turned down the chance to manage West Ham in favour of a new experience in Germany.
No more wally: McClaren has resurrected his career following a disastrous time in charge of England
Wolfsburg won the Bundesliga title in 2009 but they only finished eighth this time out, meaning they will be without European football next season.
The German outfit were knocked out of the Europa League by Fulhamearlier this season after failing to get out the Champions League groupwith Manchester United.
Top table: Wolfsburg enjoyed a sample of life in the Champions League this season and want another shot at it
McClaren's detraction from the Dutch league will come as a bitter blow to his club.
'Steve is an idol in Holland, everyone likes him and he is every inch a gentleman, he is a wise man,' club chairman Joop Munsterman said recently.
Asked what his reaction would be if McClaren was approached by other clubs, he said: 'Stay away, please.
'Like at Arsenal, Man United, Liverpool - we want him to stay for a long time because he did his job in Enschede, but we expect him to do that - we saw that at Middlesbrough.'
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