Richard Stearman opened the scoring early on with a header from close range, before Andreas Weimann made it two shortly before the break, with Divock Origi's goal coming too late for the hosts to try and snatch a draw.
Jurgen Klopp's men had won just one of their seven games since the turn of the year ahead of this encounter, losing further ground on Chelsea in the race for the Premier League title, as well as being eliminated from the EFL Cup.
That poor run of form meant the FA Cup was arguably their only realistic chance of winning silverware, but Klopp nonetheless opted to field an experimental side, perhaps with one eye on Tuesday's match versus Chelsea, making nine changes to the team that lost to Southampton in midweek.
Klopp would be made to regret that decision, though, as Stearman and Weimann handed Wolves a two-goal lead at half-time.
Liverpool managed to find a way back in late on when Origi found the net, but it was not enough, as their cup dreams came to an abrupt end in the fourth round.
Wolves got off to a dream start when Stearman opened the scoring after just 52 seconds. Helder Costa curled in a sublime free-kick from the right and the centre-back lost his marker before beating goalkeeper Loris Karius with a header from close range.
1 - Richard Stearman has scored his first goal in any competition since April 2014, 1013 days ago (for Wolves v Leyton Orient). Shock.— OptaJoe (@OptaJoe) January 28, 2017
The Championship side continued to cause Liverpool all kinds of trouble in the opening stages and Costa got a fine chance to make it two after a superb run from his own half, the winger eventually aiming wide under pressure from Ben Woodburn.
Liverpool, meanwhile, struggled to create any chances of note in the opening stages, Lucas Leiva's wayward shot from 20 yards out and a Roberto Firmino strike that went high and wide their only minor moments of danger.
Things went from bad to worse for Liverpool in the closing stages of the first half when Weimann doubled Wolves' lead after a rapid counterattack. Costa shrugged off Alberto Moreno before setting up the Austria international and he coolly rounded Karius before slotting into the empty net to make it 2-0.
The Reds brought on Philippe Coutinho at half-time as they looked to get back in the game and Firmino threatened early on with a good header, only to see team-mate Ragnar Klavan divert the ball wide for a goalkick.
Coutinho then failed to worry goalkeeper Harry Burgoyne with an opportunistic long-range strike as Liverpool at last recorded their first shot on target at the hour mark.
Fellow substitute Daniel Sturridge was next to try his luck as the hosts continued to look for a goal, aiming a shot straight at Burgoyne from 25 yards out.
Jon Dadi Bodvarsson then missed a late chance to net a third, before Origi pulled one back in the 86th minute, volleying home from just yards out after Sturridge had headed the ball back across goal.
There would not be a late equaliser, though, as Wolves eventually held on to record a sensational 2-1 victory.