Bomb disposal experts were called out to search an empty house in Wheatsheaf Road, Pendeford, after a council worker found a "suspicious device" on Wednesday evening.
Homes were evacuated and part of the cul-de-sac was cordoned off after the alarm was raised at around 6.30pm.
The bomb squad was called but the device was found not to contain any explosives, West Midlands Police said.
A 36-year-old man from Wolverhampton is now being quizzed by detectives after being arrested on suspicion of making a bomb hoax this morning.
Residents of the street were temporarily moved to the nearby Dovecote Housing Office on Ryefield while the bomb disposal team dealt with the device, which was flagged to the police after being spotted during a routine inspection.
They were allowed to return to their homes at around midnight.
Amie Merry, the chief officer of Dovecotes Tenant Management Association, said:“On Wednesday afternoon an officer of Dovecotes TMO discovered a suspicious device whilst carrying out an empty property inspection.
"We immediately informed our local police unit who then followed their procedure in dealing with incidents of this nature.
"We would like to thank West Midlands Police for their support and local residents for their patience and understanding”.