The left-winger, who was a part of the 1974 League Cup-winning team, played 404 games for the club between 1964 and 1976 and became a hero among the Molineux faithful.
Wolves chief executive Jez Moxey announced the news, revealing that plans to honour Wagstaffe are in the works for Saturday's League One clash against Gillingham.
"Everyone at Wolves was desperately saddened to hear of Dave's passing this afternoon," read a statement. "Dave's teammates, and the fans who saw him play always speak so highly of his skill and ability, and he was of course an integral part of the team which reached the UEFA Cup Final in 1972 and won the League Cup against his former club Manchester City at Wembley two years later.
"Our sincere condolences go to Dave's partner Val, their children, Gary, Mandy and Scott, and Dave's wider family. Scott works for Wolves at Molineux, and has been keeping the club informed during Dave's recent battle against illness.
"Everybody at the club and supporters will get the chance to join together to pay tribute to Dave ahead of our game with Gillingham on Saturday."
Wagstaffe, joined Wolves from Manchester City in 1964. He went on to play for Los Angeles Wolves, Blackpool and had two spells at Blackburn Rovers.