Setting the TextWrapping to Wrap or WrapWithOverflow will not allow the WatermarkContent to be wrapped.

Reason for decline: 

Instead of setting the content inline, we recommend setting it as follows: 

<telerik:RadWatermarkTextBox Width="100">
	<telerik:RadWatermarkTextBox.WatermarkContent>
		<TextBlock TextWrapping="Wrap" Text="Watermark Content Watermark Content Watermark Content Watermark Content" />
	</telerik:RadWatermarkTextBox.WatermarkContent>
</telerik:RadWatermarkTextBox>

More information can be found in our help about using the WatermarkContent and WatermarkTemplate properties: https://docs.telerik.com/devtools/wpf/controls/radwatermarktextbox/features#using-the-watermarkcontent-property
Please let us know if this is not applicable in the scenario of your application.