The ex-Burnley defender initially came to the club at the start of the 2018/19 campaign in the role of Academy coach, helping assist Darren Ryan with the under-18s.
Ryan will continue at Wolves, working alongside Head of Academy Scott Sellars in leading elite player development across the Academy, as well as assisting Davis with the under-18 group on a day-to-day basis.
Sellars said: “Steve's got huge experience as a manager at Crewe and Leyton Orient and as a development coach working with Academy football. He proved last season how much of a big help he was to us in the development of players, and we think he can continue moving us forward in this role.
“Darren's fantastic with young players and has been very successful in his time at Wolves, playing a key role in the development of several players who have made it into the first-team, such as Morgan Gibbs-White."