Collins – a Uefa Pro licence holder – joins from Crewe, where he worked under current Wolves under-18 head coach Steve Davis.
Head of academy Scott Sellars – after conducting a rigorous interview process following Rob Edwards' departure in October – said on Collins: "After a long interview process, where we interviewed many good candidates at various stages of their coaching careers, we felt James was the best fit for the role and someone who would help move the development of our young players at Wolves forward.
"He has vast experience in developing players after working across both the development side and at first-team level throughout his career at Crewe – a club which has a great legacy of turning emerging young players into first-class professionals.
"Not only does James possess high levels of experience in supporting players to blossom as quickly as possible, we also felt he had the right credentials as a person; mirroring the values which are important to us as a football club."
Former Wolves winger Kennedy, meanwhile, has left to 'pursue new opportunities' after managing the team on an interim basis.
On Kennedy, Sellars added: "We are extremely grateful for the work Mark has carried out during his time as caretaker coach.
“He first came to the club on a short-term contract in the summer to work with our loans group, and when Rob decided to leave we felt he would be the right person to lead the under-23s whilst we conducted the recruitment process.
“Mark has shown great commitment to the role and has been very supportive of everyone at the club. He has been a great credit to himself throughout his time with us and it’s been a pleasure to have him here at Wolves. We wish him the very best in all his future endeavours.”