The 25-year-old is Scott Parker’s first signing of the summer and Fulham have the option to buy Cavaleiro at the end of the Championship season.
Cavaleiro joined Wolves from Monaco for £7m, then a club record, in 2016 according to bbc.com.
He scored nine goals as Wolves won the Championship title in 2018, and then helped Wanderers a seventh-placed finish in the top flight last season.
“I’m really happy to be here and sign for Fulham,” said Cavaleiro.
“This is a big and respected club in England and through the rest of the world. Fulham has been involved in a European final, so it holds great pedigree.
“This is a good opportunity for me to grow as a player as well so I’m very happy to be here and I’m excited to be meeting everyone today.”