He has also signed a new Wolves deal until 2023, replacing his previous contract which was due to expire in the summer of 2022.
The 20-year-old academy product, from Stafford, reunites with Steve Cooper – who he played under when England Under-17s won the 2017 World Cup.
Rhian Brewster, another who played under Cooper with England, enjoyed a fruitful loan spell at the Liberty Stadium from Liverpool last season, and Gibbs-White said: "I spoke to Rhian about his time down here and he said he loved every minute of it.
“When I got that sort of feedback and I saw the sort of impact he had down here with the goals he scored, I looked at it and thought maybe I can do that.
"I am happy to be here and I cannot wait to impress the fans and show them everything I can do."
It is Gibbs-White's first loan move away from Molineux, having made 70 appearances in all competitions since first breaking into the senior set-up at 16.
He only made one Premier League start for Nuno Espirito Santo's side in 2019/20, and he now joins Swansea after they reached the Championship play-offs last season.
Wolves chairman Jeff Shi said: "Morgan’s been with Wolves from a young age and has shown the genuine talent and potential he has, so it’s a positive step forward to have his new contract agreed.
“Now, we see Swansea as the ideal loan move for him. Hopefully he’ll receive opportunities to impress under a manager he knows well and we’re looking forward to monitoring his performances and development.
“Hopefully Morgan can help Swansea achieve their goals as a club through his performances on the pitch, then return to Wolves next summer stronger, and more experienced from his time in South Wales.”