The 24-year-old joined the club from Luton in 2007 and had a year remaining on his deal with the club.
But Foley, who made his Republic of Ireland debut last weekend, has now agreed to sign new terms at Molineux and will put pen to paper next week.
"It's something we've talked about for a while and to have finally got it done is great," he told his club's official website.
"I'm delighted to have secured my long-term future at Wolves - it's something I'm looking forward to and I can't wait to start next season now.
"I definitely see my long-term future at Wolves. We've got the nucleus of a good team here and hopefully we can go from strength to strength."
Foley is the second Wolves player to commit his future to the club this summer, following in the footsteps of captain Karl Henry, who signed a similar contract last month.