The 22-year-old has been out of action since last April when he broke his leg – missing the World Cup as a result of the injury.
He made a total of 39 appearances for Hoffenheim prior to that injury and had been playing for the club’s reserve team more recently.
“Koen didn’t have an easy situation with us recently and this transfer is going to boost his prospects,” Hoffenheim director of sport Alexander Rosen said on his club’s website.
Casteels has signed a two-and-a-half-year contract with Wolfsburg, although he is not likely to spend the second half of the season with them.
Bremen are on the lookout for a new goalkeeper and had also targeted the Belgian, who they may now take on loan until the end of the season.
Casteels is likely to find himself behind Diego Benaglio in the Wolfsburg pecking order, but could challenge Raphael Wolf for the number one jersey at Bremen.