Hill was part of the side that won promotion to the Barclays Premier League in 2008/09 but has not been a regular since their return to the top flight.
Instead he has spent loan spells with QPR and, more recently, Barnsley where he has made seven appearances and scored one goal this season.
Wolves boss Mick McCarthy told the club's official website: "Hilly has been a great professional during his time here with us.
"He came in and made an important contribution during the promotion-winning season and has always been a very good influence around the place.
"We would like to thank him for his efforts and wish him all the best for the future."
Source: PA
Source: PA