The 23-year-old moves to St. Andrew's on a two-year contract, with a further year's option, after Blues agreed an undisclosed fee with their Sky Bet Championship neighbours.
Smethwick-born Davis began his career as youth player with Wolves in 2008, before signing professional terms for the club in May 2009.
He made his first-team bow in October of that same year, whilst on loan with Darlington. During a six-year spell at Molineux, he also spent time out on loan with Walsall, Shrewsbury Town, Inverness Caledonian Thistle and Chesterfield.
He leaves Wolves having made 59 appearances for the Black Country outfit.
Davis has been allocated squad number 26 and will be eligible to play for Blues in Tuesday's Capital One Cup first-round tie against Cambridge United at St. Andrew's.
The new recruit's arrival comes less than a week after Tom Adeyemi's departure to Cardiff City
Stay tuned to our official YouTube channel
for the first interview with Davis.