Michael Gray's winner settled an enthralling clash at Watford and maintained Wolves' promotion push.
Chris Iwelumo put Wolves in front after 57 seconds but Grzegorz Rasiak bundled home an equaliser after 21 minutes.
David Jones curled in a superb free-kick to put Wolves ahead again before the break but John-Joe O'Toole restored equality after 47 minutes.
Tommy Smith fired over from the spot on the hour after Jones fouled O'Toole before Gray's 71st minute strike.
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"It's alright being entertaining and scoring goals, which is lovely and what we all want to see.
"But we all know that keeping clean sheets wins championships. At the minute we're miles away from that."
Wolves boss Mick McCarthy:"There was some rubbish defending, rubbish finishing.
"It could have been 6-6. There were some strange decisions and the penalty got what it deserved by being blazed over because I don't think it was one.
"If his is one, Chris Iwelumo's in the first half when it was 1-0 is an absolute stonewaller."
Watford: Lee, Sadler, Bromby, Mariappa, Doyley (Henderson 88), Eustace, Harley (McAnuff 71), Smith, O'Toole, Rasiak, Hoskins (Ainsworth 72). Subs Not Used: Tyler, Jenkins.
Booked: Eustace.
Goals: Rasiak 21, O'Toole 47.
Wolverhampton: Ikeme, Foley, Shackell, Collins, Ward, Kightly, Henry, Jones, Gray (David Edwards 76), Ebanks-Blake (Keogh 81), Iwelumo (Vokes 86). Subs Not Used: Hennessey, Friend.
Booked: Henry, Collins, Iwelumo.
Goals: Iwelumo 1, Jones 40, Gray 71.
Att: 16,386
Ref: Keith Woolmer (Northamptonshire).
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