The 29-year-old arrives on a two-and-a-half year deal for a nominal fee, as his contract at City was up in the summer.
Bentley had his medical on Wednesday and has now signed on the dotted line, becoming Wolves' fifth January signing.
Wolves were keen to add more experience and leadership to the squad as well as competition for Jose Sa in this window.
Despite not playing for Bristol City since October, Bentley fits the bill for Wolves as club captain of the south west club.
As a result of Bentley joining, fellow shot-stopper Sarkic has left for Stoke until the end of the season.
The 25-year-old has only featured three times all season, twice in the Carabao Cup and once in the FA Cup, and departs for game time.