The 2008-09 Bundesliga champions have found a replacement for Felix Magath some three weeks after he got the sack
The Wolfe were looking for a replacement following the departure of Felix Magath last month, who not only occupied the position of head coach but doubled up as director of football.
They have been continually linked with a move for Allofs since, and have now managed to lure the 55-year-old away from Bremen.
"We have reached a good agreement with Werder," Wolfsburg board member Stefan Gruhsem told Kicker.
Allofs has signed a contract until the summer of 2016 with his new club.
The former West-Germany international had been Bremen's sporting director ever since 1999, working in tandem with coach Thomas Schaaf to win the domestic double in 2003-04.