Ricardo Rodriguez scored from the spot before Maximilian Arnold netted the second, in what was a superb performance from the Lower Saxony side.
Real looked toothless and failed to take their chances when they came, leaving them with a mountain to climb at the Bernabeu.
Rodriguez and Arnold have Real on the ropes
The game began as many would have expected, neither side wanted to give up an early goal and there would be no strike in the first quarter of an hour. The only real opportunity came to Karim Benzema, but Diego Benaglio managed to keep the came scoreless with his foot.
It was a promising start from the Wolves, who were showing no real signs of weakness early on. That promise soon turned into something so much more, as Casemiro and André Schürrle collided in the area. There was some debate as to whether or not it was simply a tangle of legs, but Ricardo Rodriguez stepped up and made no mistake from the spot to give his side the lead.
This was a dream start for the sold-out Volkswagen Arena crowd, yet it would get even better. Julian Draxler picked the ball up on the edge of the area before spreading it wide to Bruno Henrique. The Brazilian, who was impressing on his first start for the club, made the most of Marcelo's lapse in concentration to fire a cross into the near post area. Maxilimian Arnold stole a march on his marker, before sliding under Keylor Navas.
There was little to shout about at either end as the half drew on. Benzema missed another chance with a free header, while Gareth Bale whipped a free-kick over the bar. Draxler had a chance to get on the scoresheet himself, though his effort brushed the side-netting. The hosts got to half-time unscathed, with Madrid looking a shell of the side that beat Barcelona at the weekend.
Hosts hold on
The second half began similarly to the first, and both teams failed to create any real clear-cut chances. Cristiano Ronaldo was awaking from his anonymity in the first half but still showed little in the way of clinical finishing. He had several chances to test Benaglio but couldn't get his shots on target, with Wolfsburg now happy to dig in on the edge of their own area.
Dieter Hecking's side could have found an incredible third goal with a lightning-quick counter when the ball found its way to Schürrle at the back post. The winger was being charged down by the Real defence, and fired over from inside the area as a result. Ronaldo then sprang into life once more, driving into the box, but Benaglio came to Wolfsburg's rescue once more.
The remainder of the game played out without any major threat to the home goal, as Gianluca Rocchi called time on the game. It was a comfortable, confident performance from the Wolves who will be favourites to progress after this result. Real looked toothless, and will need to put in a much better showing next week.