Danny Butterfield scored three goals in seven minutes to secure Palace's place in the fifth round and book a tie against Premier League giants Aston Villa.
He capitalised on three defensive errors by Mick McCarthy's men to score one of, if not the fastest hat trick in Crystal Palace's history. But take nothing away from Butterfield's hatrick; all three strikes were excellent finishes by a player who by his own admission would not boast finishing as a core strength.
And this was by no means an undeserved victory for Palace as they controlled the game from the offset and created the better of the opportunities throughout. Wolves by contrast were thoroughly disappointing and created only a handful of half chances in response.
The Eagles laid down their intentions early on when, on six minutes Butterfield almost began the night with an assist as he almost put a beautifully weighted cross on to Alan Lee's head, only for right back Ronald Zubar to take it off his head with a last minute header.
Lee then turned provider when his knock down found Darren Ambrose in the box. The midfielder took one touch to control it before smashing it into the Holmesdale with his second.
Ambrose then came marginally closer when he met a low cross from Nathaniel Clyne but it ended with the same conclusion.
As for Wolves their chances were limited to just one when new signing Geoffrey Mujanga Bia struck a first time effort from 25 yards high and wide.
The half finished as a scrappy affair with referee Lee Mason pulling the play up for a series of tame challenges, and then missed a challenge on Lee that ended with the Palace striker receiving a nasty cut below his eye.
But Palace still managed to carve out good chances.
Ambrose was almost played through in a crowded box where, as he was crowded out, the covering defender managed to get a toe to it to take it away from him. The ball fell to Nick Carle, but his first effort was closed down and blocked on the edge of the box.
Carle then came agonisingly close when he finished off a flowing Palace move with a low shot across the keeper that crept past the wrong side of the post, while Lee returned from having his cheek stitched to almost find Danns with a teasing cross from the right.
The first half was not the exciting affair we had all hoped but the tie remained on a knife's edge with the first goal almost certainly set to be the most vital.
And Palace came out of the traps early on clearly eager to carry on the momentum they had gathered in the first.
Two early attacking forays into the Wolves' half led to two free kicks in dangerous areas and there was only one man ready to take them. Ambrose stepped up to both but his first was saved comfortably by Hennessey, while the second he saw fly a good couple of yards wide after attempting a Ronaldo-esque strike.
Wolves' defender Michael Mancienne typified his side's away threat when he picked the ball up outside the box but shot tamely into Speroni's arms, while on 56 minutes Ambrose held up a cross to the back post where Danns managed to steal a yard on his marker and head across goal.
Palace finally got their reward on 61 minutes with Butterfield's first of the night. A corner in from the right was met by an unmarked Matt Lawrence with a good header that Hennessey did very well to save, but he only succeeded in parrying it into the path of Butterfield who converted from close range with an easy header.
For those that were surprised to see him on the scoresheet for his first goal of the season it got even better four minutes later when he doubled his and Palace's tally.
A knock on from Lee found Ambrose who played a first time ball to an unmarked Butterfield and he stayed on side to play the ball under Hennessey.
The fairytale then got even better seven minutes after his first of the night when he capitalised on some defensive uncertainty in the Wolves back line to convert another knock on for his hat trick.
The evening was spoiled somewhat when Karl Henry converted from but it was mere consolation for Mick McCarthy's men and Palace celebrated a famous victory.
We are looking forward to the next round immediately with tickets for the next round going on sale tonight. Further details to follow soon.
Crystal Palace : Speroni, Clyne, Hill, Derry, Ambrose, Danns, Carle (Comley, 84), Lawrence, Lee (Andrew, 75), Butterfield (Djilali, 88), Davis.
Subs: Scannell, Wynter, Mann.
Booked: Derry, Lee
Wolverhampton Wanderers : Hennessey, Stearman, Craddock, Henry, Berra, Vokes (Iwelumo, 59), Milijas, Zubar, Muganga Bia (Ebanks-Blake, 59), Mancienne, Foley.
Subs: Surman, Hahnemann, Jones, Halford, Castillo.