O'Driscoll, whose previous clubs include Bournemouth and Doncaster, worked under previous Forest manager Steve Cotterill for five months earlier this year before leaving to join Crawley in May.
The Kuwaiti-based Al Hasawi family sacked Cotterill shortly after taking control of the club and were linked with moves for a string of big-name bosses, including Mick McCarthy, Glenn Hoddle and Roy Keane.
Majority shareholder Fawaz Al Hasawi acknowledged as much, but declared O'Driscoll the ideal appointment.
"We interviewed many well-known and high profile figures but we truly believe Sean O'Driscoll is the best man for the job," he said.
"Sean's passion for Nottingham Forest, knowledge of the game and the Championship in particular, plus his work ethic, shone through in our conversations. We are delighted to welcome Sean back to the club. He has our total support and we are looking forward to a long and successful relationship.
"He is hugely respected, not only by members of our current squad and staff at the club for his work in helping transform our fortunes last season, but also within the wider football community."
The former Republic of Ireland international said: "It was an easy decision to make to return to Nottingham Forest.
"I enjoyed my time working with the players last season, and even in sometimes difficult circumstances the fans gave the kind of support you don't often see in football today.
"The Al Hasawi family's ownership opens exciting prospects for this club and I look forward to rebuilding the squad and playing the kind of attractive football the City Ground deserves to see."
Crawley chief executive Alan Williams was willing but reluctant to bid O'Driscoll farewell after just two months in the job.
"The club is extremely disappointed to be losing Sean so soon after he came to Crawley Town, but our policy has never been to stand in the way of any employee who feels they would prefer to pursue a role at a different club." he said.
"We would like to thank Sean for his efforts during his time at the club and we wish him all the best for the future."
Crawley director of football Steve Coppell and head coach Craig Brewster will take over team affairs for the time being.