Diego netted a brace as Pierre Littbarski earned his first win as Wolfsburg coach.
Diego missed an early penalty, but atoned for his mistake by finishing well from Sascha Riether's cut-back (36'), and curling in a brilliant free kick on the stroke of half-time. Gladbach made a game of it late as Filip Daems netted a penalty on 73 minutes, but the visitors were unable to complete their comeback.
Wolfsburg were all over their visitors from the opening kick-off, and looked nothing like a side that entered the match fighting to avoid relegation. On nine minutes, Dieumerci Mbokani struck his header off the post, and Jan Polak would have had a clear chance on goal if not for Havard Nordtveit's last-ditch challenge.
Mbokani put the ball in the net on 14 minutes, but the play was called back for offside. Before the half hour mark, Sascha Riether was fouled by Juan Arango inside the penalty area, but Diego's spot kick sailed over the bar.
It was only a matter of time before Wolfsburg took the lead, and surely enough, Diego scored twice to give the hosts a deserved lead. Gladbach had little to account for themselves in a first half that was largely disappointing.
Patrick Herrmann was well set up, but his header caused no trouble for Diego Benaglio, and the impressive Marco Reus teed up Roman Neustaedter in the middle of the penalty area, but the holding midfielder sliced well wide.
Wolfsburg were cruising towards three points until Daems' penalty, which came under rather dubious circumstances. There had been few opportunities from either side before Polak was penalized for climbing on Martin Stranzl's back as the two contested for a routine ball in the box.
After Daems' goal, Reus had a brilliant half-volley saved and Marwin Hitz did just enough to save Nordtveit's long drive. Simon Kjaer had his headed goal disallowed for a foul, but Gladbach were unable to capitalize on the referee's gift and slumped to a disappointing defeat.
The result will come as a huge disappointment for Gladbach, who had a chance to gain ground on relegation rivals. The Fohlen remain 18th in the table, while Wolfsburg move 13th, with 26 points from 24 matches.
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