The 20-year-old attacking midfielder links up again with Wolves boss Nuno Espirito Santo following his loan spell at Nuno's former side Porto last season, which saw him score eight times in 27 league appearances.
Jota, who has been capped at various youth levels for Portugal, signed for La Liga giants Atletico on a five-year contract last summer and his loan deal with Wolves is thought to include an option to buy at the end of the season.
"I am very excited," Jota told the Wolves website. "Wolves is a huge club and a historic club. It is always a goal for me to play in England and this is a good opportunity for me.
"It is good for me to work with Nuno again because I know him and worked with him last year. I have also worked with some of the other players here as well. That will help me settle in here. It is always better when there are people that you know when you are moving to something different – a different country with a different language.
"Playing in the Championship will be very hard and very competitive with a lot of games. It will be a good experience for me. I will always do my best for the fans – I will do a lot of running for sure and hopefully will score goals and provide assists."
Jota links up with an ever-growing Portuguese contingent at Molineux and becomes the Championship side's 10th senior signing of the summer, as well as the third player to work with Nuno at Porto last season following on from the Championship-record capture of Ruben Neves and the loan signing of Willy Boly.