Aden Flint headed against the bar for the hosts before Jamie Paterson curled in their opener from 18 yards.
Tammy Abraham's coolly taken penalty made it 2-0 after Matt Doherty had brought down Mark Little in the box.
Abraham's second from close range sealed the win, with Jon Dadi Bodvarsson getting Wolves' consolation.
The Iceland striker scored his first goal since 20 August, but it came too late for Wanderers to mount a serious comeback.
City had started Saturday's game just one point above Blackburn, but their win and Rovers' home defeat by Barnsley established a valuable cushion over the bottom three with five matches left to play.
Two successive wins before the international break appeared to have eased some of the pressure on City, but away losses at Brentford and Preston - the latter a 5-0 defeat on Tuesday - put Lee Johnson's side back in trouble.
However, they capitalised on a poor Wolves performance, which was massively below par compared with those that earned boss Paul Lambert the Championship manager of the month award for March.
Wanderers, who gave a first start to teenager Morgan Gibbs-White, struggled for creativity without injured record signing Helder Costa and winger Ivan Cavaleiro, who came off the bench to replace the 17-year-old shortly after City's third goal.
Bristol City head coach Lee Johnson: "After conceding five at Preston, I needed to pick players I could trust today and the reaction was just as I had hoped.
"We had energy about us and did the basics well.
"The job is far from done, but I have never doubted our ability to stay in the Championship."
Wolves boss Paul Lambert: "We fell below the high standards we have set and when that happens in the Championship you get beaten.
"I am not going to have a go at the players because they have been brilliant in recent games.
"All good things come to an end, but we are certainly not going to pretend our season is over."
Match ends, Bristol City 3, Wolverhampton Wanderers 1.
Second Half ends, Bristol City 3, Wolverhampton Wanderers 1.
Substitution, Bristol City. Jens Hegeler replaces Tammy Abraham.
Corner,  Wolverhampton Wanderers. Conceded by Bailey Wright.
Corner,  Wolverhampton Wanderers. Conceded by Joe Bryan.
Foul by Danny Batth (Wolverhampton Wanderers).
Aaron Wilbraham (Bristol City) wins a free kick in the defensive half.
Substitution, Bristol City. Callum O'Dowda replaces Jamie Paterson.
Attempt saved. Andreas Weimann (Wolverhampton Wanderers) left footed shot from outside the box is saved in the centre of the goal. Assisted by Ivan Cavaleiro with a cross.
Ben Marshall (Wolverhampton Wanderers) wins a free kick in the defensive half.
Foul by Mark Little (Bristol City).
Substitution, Wolverhampton Wanderers. Romain Saiss replaces Lee Evans.
Foul by Kortney Hause (Wolverhampton Wanderers).
Josh Brownhill (Bristol City) wins a free kick on the right wing.
Attempt saved. Lee Evans (Wolverhampton Wanderers) right footed shot from outside the box is saved in the bottom right corner. Assisted by Ben Marshall.
Goal!  Bristol City 3, Wolverhampton Wanderers 1. Jón Dadi Bödvarsson (Wolverhampton Wanderers) left footed shot from the left side of the six yard box to the bottom left corner following a set piece situation.
Attempt blocked. Lee Evans (Wolverhampton Wanderers) left footed shot from outside the box is blocked.
Ivan Cavaleiro (Wolverhampton Wanderers) wins a free kick on the right wing.
Foul by Joe Bryan (Bristol City).
Ivan Cavaleiro (Wolverhampton Wanderers) wins a free kick in the defensive half.
Foul by Aaron Wilbraham (Bristol City).
Substitution, Bristol City. Aaron Wilbraham replaces Matty Taylor.
Attempt missed. Aden Flint (Bristol City) header from the centre of the box misses to the left. Assisted by Jamie Paterson with a cross following a corner.
Corner,  Bristol City. Conceded by Ivan Cavaleiro.
Foul by Matt Doherty (Wolverhampton Wanderers).
Josh Brownhill (Bristol City) wins a free kick in the defensive half.
Attempt missed. Ivan Cavaleiro (Wolverhampton Wanderers) right footed shot from outside the box is too high following a corner.
Corner,  Wolverhampton Wanderers. Conceded by Joe Bryan.
Substitution, Wolverhampton Wanderers. Jón Dadi Bödvarsson replaces Nouha Dicko.
Aden Flint (Bristol City) is shown the yellow card for a bad foul.
Ivan Cavaleiro (Wolverhampton Wanderers) wins a free kick on the left wing.
Foul by Aden Flint (Bristol City).
Attempt missed. Ivan Cavaleiro (Wolverhampton Wanderers) right footed shot from outside the box is too high from a direct free kick.
Lee Evans (Wolverhampton Wanderers) wins a free kick in the attacking half.
Foul by Tammy Abraham (Bristol City).
Corner,  Bristol City. Conceded by Andy Lonergan.
Attempt saved. Aden Flint (Bristol City) header from the centre of the box is saved in the bottom left corner. Assisted by Josh Brownhill with a cross.
Substitution, Wolverhampton Wanderers. Ivan Cavaleiro replaces Morgan Gibbs-White.
Foul by Kortney Hause (Wolverhampton Wanderers).
Tammy Abraham (Bristol City) wins a free kick in the attacking half.
Bristol City moved four points clear of the Championship relegation zone by beating Wolves, whose five-match winning run was ended at Ashton Gate.