Odin Bailey netted for Blues in the 68th minute, reducing the arrears after Benny Ashley-Seal scored twice for the hosts before the break.
The result out Wolves top of the Premier League Cup Group H, with Blues having drawn their opening match at Leeds United.
Blues had been in good form going into the fixture: they had won their last three PDL games on the spin without conceding a goal.
Scott Bevan, Blues Under-23s Goalkeeper Coach, reflected: "It was a good game. Both teams had a right good go. It was a mixed bag in terms of first-half and second-half.
"First-half we were a little bit sloppy at times. Though we played out quite well and caused a few problems for them in attack, just that link up play with the midfield area was a little bit wanting.
"We gave the ball away cheaply, which allowed them to counter attack us. A couple of our mistakes led to their goals.
"Second-half we addressed a few things and we caused them all sorts of problems and, on the balance of play, deserved something from it.
"So it was a frustrating afternoon. Some good things and some things to work on."
The errors for Wolves to seize the initiative didn't damper the side's approach.
Moha Ramos had to be on his toes and was secure as Blues gradually got more of a foothold in the game.
Bailey went through down the left, after Miguel Fernandez won possession and squeezed a pass in behind, and finished low past the 'keeper to put the outcome on a knife-edge.
Fernandez was later denied from point blank range by a superb double block by a Wolves defender.
Bevan said: "When you are playing out from the back there are going to be times when things happen.
"They were brave enough and kept going, and we started to gain control in the second-half because we were keeping the ball and retaining it.
"In what were really difficult conditions, with the rain, wind and cold and stuff, it was pleasing to see we finished strongly and should have come away with something."
Bevan said he had been impressed with the way this Under-23s group has been taking shape.
"The progression in this group has been really good.
"At the start of the season results were stop-start, performances were OK. But we have really started to click and we have got some good technical players who are good at keeping possession of the ball.
"The style of play we are now putting forward is starting to suit them and some of the performances over recent weeks have been fantastic.
"To see Odin Bailey, Geraldo Bajrami in and around the first team - and obviously Jude Bellingham - it's great that these lads are getting opportunities.
"Hopefully there's a few more coming through the pipeline as well and will be knocking on the door pretty soon."
* Blues Under-23s next home match, against Hull City Under-23s, has been moved to the Trillion Trophy Training Centre, Wast Hills
It was to be played at Leamington FC but due to their FA Trophy involvement it will now take place at Blues training HQ on Friday, 22 November (1.30pm)
Blues: Ramos, Forrest, Seddon, Stirk, Redmond, Bajrami, Thompson-Sommers (Campbell 60), Boyd-Munce, Andrews (Fernandez 69), Bailey, Concannon. Subs not used: Weaver, Burke, Roberts.