Ancelotti says the former Barcelona man is ready to play 90 minutes in the round-of-16 clash at the Allianz Arena, while Joshua Kimmich has also been passed fit after he sat out the 1-1 Bundesliga draw with Schalke.
"Thiago can help us with his quality. He is ready and he can play 90 minutes. He'll be in the starting line-up," Bayern's head coach told a news conference.
"Kimmich trained today [Monday], he is fit and has no more problems. All the other players are in good shape. They've recovered well."
Ancelotti criticised Bayern for failing to show enough solidity in Saturday's draw and he has challenged his players to improve aspects of their performance against a Wolfsburg side who are out to prove a point following back-to-back losses.
"We were not compact enough," he reiterated. "It's about team work. I'm sure we will work together against Wolfsburg.
"You can compare Wolfsburg with Schalke. Things aren't working so well - they're not so good in terms of the table.
"They have good players. I think they'll come to play defensively and then counterattack. We'll have to put all our effort out onto the pitch.
"We've been working hard lately and maybe we didn't deliver what we're capable of in the last three games.
"We've focused on preparing the players for difficult spells."