The 35-year-old was offered a new deal after helping Wolves to survive in the Premier League for a third successive season and has finally put pen to paper.
Craddock knows he will face competition for his spot with Reading centre-back Matt Mills among Wolves manager Mick McCarthy's potential targets but is prepared to battle.
He said: "It's good news that the contract is all done and dusted and I can concentrate on the year ahead. This time last year I was thinking it would be my last season so to get another 12 months is a big achievement."
Craddock added: "There may be competition but it's never a problem for me when a new centre-half comes in.
"It's all about what benefits the club. If I have to scrap it out with another centre-half, so be it.
"I just need to give myself the best opportunity to be involved at the start of the season."
Craddock was Wolves' player of the year for the 2009-2010 campaign but injury problems meant he missed most of last season before returning for the finale of the fight to stay up.