Reporting to chief executive Jez Moxey and the board, Thelwell will take responsibility for football operations, including helping manager Stale Solbakken with first-team player recruitment.
The appointment bridges the gap left by chief scout Dave Bowman and European scout Ian 'Taff' Evans, who joined former boss Mick McCarthy at Ipswich.
Thelwell, who will start immediately in his new role, will lead player recruitment, coach education across the club and encourage key players to develop at all levels.
Wolves chief executive Jez Moxey said: "Kevin's appointment will help the club's football activities in many ways.
"For some time the board has felt this was a necessary step to take but we wanted Stale and the new coaches to acclimatise.
"Having interviewed some excellent candidates for the post we felt Kevin had the necessary qualifications and track record to do a very good job."
Thelwell said: "From a first-team perspective we're very clear about what the club needs, but we need to recruit well at all levels.
"The manager will have final say on first-team players we wish to sign but hopefully this will also give our scholars a real lift to know they will have another person fighting their corner."
Solbakken said: "The aim is to implement a consistent football philosophy and togetherness on and off the pitch, and Kevin will help us achieve this.
"Kevin and I have developed a very good working relationship and I look forward to working with him even more closely."
Thelwell, who arrived at Molineux in April 2008, was the youngest academy manager in the country when he took over at Derby at the age of just 32.
In his first season with Derby he worked with the first team and played an important role in the club's promotion to the Premier League.
A holder and tutor of the UEFA pro licence, he has a degree in sports science and a business management diploma through the highly acclaimed Warwick Business School.
He also served as interim first-team manager for Derby in 2006-07 and successfully led Wolves to become a category one academy.