The 22-year-old becomes Wolves’ first signing of the transfer window, on the back of captaining Spain to under-21 European Championship glory this summer.
The loan spell with Wolves will be Vallejo’s third away from the Bernabeu, where he moved in 2015 from Real Zaragoza.
Following a temporary return to his former club, the youngster experienced the Bundesliga with Eintracht Frankfurt, playing regularly during the 2016/17 campaign.
Vallejo made seven of his 19 Madrid appearances last season and recovered from injury to net his first La Liga goal against Villarreal in May.
Internationally, the defender has played for four levels of Spanish youth sides, including 22 times for the under-21s, who he currently captains.
Vallejo is already familiar with Wolves’ Jonny Otto, after the pair played together on seven occasions for Spain’s under-21s in the past.
After Wolves qualified for the Europa League this campaign, Vallejo’s experience of the Champions League with Madrid will be beneficial to Nuno and his squad.
Now in Wolverhampton, Vallejo watched his new team mates in action against Crusaders at Molineux on Thursday and could make his debut in the second leg next week.
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