Sky Sports revealed on Tuesday that the Wales international was heading out of the Stadium of Light on a short-term agreement.
Several Championship sides were said to be keen on acquiring his services, but it is Forest who have managed to secure his signature.
Vaughan will now remain at the City Ground until 29th January.
He will be hoping to use his time in the second tier to catch the eye of new Sunderland boss Gus Poyet, who has overlooked him since taking the managerial reins at the Stadium of Light.
Vaughan has not figured for the Black Cats since a 3-1 defeat to Arsenal in September so will be hoping to get his campaign back on track with Forest.
Billy Davies hopes the 30-year-old's vast experience will aid the Reds' push for promotion back to the Premier League, with Forest sat sixth in the table at present - six points adrift of the top two.