The 25-year-old has linked up with the Hornets as he aims to gain some match sharpness following a succession of injuries.
"Michael is fit to play and has already started two of our Barclays Premier League games this season," Wolves manager Mick McCarthy told the club's official website.
"But having spoken to him he feels he needs to play maybe five or six games on the bounce which is something he hasn't been able to do in the last two years.
"We had a discussion and agreed that he should try and go out on loan where there's a better chance of playing those games and helping him get towards the levels needed for the pace of the Premier League."
Kightly joined Wolves on a permanent basis from Grays Athletic in 2007.