Wolves turned to Connor, 49, after Walter Smith, Alan Curbishley and Brian McDermott ruled themselves out.
"This is a decisive step which creates certainty. The players are fully behind it," Wolves owner Steve Morgan said.
The move prompted Professional Footballers' Association cChief Executive Gordon Taylor to suggest the American style 'Rooney rule' - where NFL clubs must shortlist at least one minority candidate when appointing a manager - should be introduced in English football.
Taylor has welcomed Terry Connor's appointment as Wolves manager, but wants English football to do more.
"We need to keep this moving forward," Taylor said. "We hope that there will be an opportunity to have the Rooney rule introduced at Football League level initially."
“As the players' voice, we are committed to tackling the issue of black players going into coaching and management'
One in three PFA members are black or of mixed parentage, as were 21% of all those members who took the UEFA coaching licences between 2009 and 2011.
Connor, who has been appointed until the end of the season, is the only black manager in the Premier League, and joins just a handful of high profile black managers like Charlton's Chris Powell and Chris Hughton at Birmingham
Football League chairman Greg Clarke is broadly supportive of the idea and wants to have discussions with clubs about their recruitment process for coaches.
Taylor has held talks with NFL commissioner Roger Goodell about introducing the rule, and also raised it at this week's discrimination summit headed by Prime Minister David Cameron.
He added: "We now have a large representation of qualified coaches who are from ethnic minorities and we feel very strongly this is the way forward.
"It is very encouraging that Terry Connor has been given this chance by Wolves. It is exactly the same way that Chris Hughton came to the fore at Newcastle. As the players' voice, we are committed to tackling the issue of black players going into coaching and management."
Terry Connor factfile
•Scored on his Leeds debut as a 17-year-old
•Made over 100 appearances for Leeds, scoring 22 goals
•Moved to Brighton in 1983 for £500,000 but was cup tied for the FA Cup final
•Won one England Under-21 cap in November 1986, when he played and scored against Yugoslavia
•As a coach helped Bristol City to promotion in 1998
•He was promoted to assistant manager at Wolves in 2008