The 42-year-old former defender played more than 100 times for Wolves between 2004-2008 and went on to coach in the academy and briefly become interim head coach of the first team in 2016.
Now, the Telford-born boss will return to the club in the hope of dragging them out of relegation trouble as he replaces Vitor Pereira as the new head coach.
Discussions are being finalised over his backroom team and Edwards is set to be unveiled as the new boss in the coming days.
Wolves originally moved for former head coach Gary O'Neil but after he turned it down they quickly turned their attentions to Edwards, who has plenty of admirers in the Wolves hierarchy and has come close to joining the club in recent years.