The Scot, who previously managed Forest between 2008 and 2011, was installed as favourite to take over at the City Ground following the departure of Alex McLeish earlier this week.
Blackpool chairman Karl Oyston has now confirmed that Davies has told him that he is not in consideration for the Bloomfield Road job as he has "decided to follow another opportunity".
And while Forest appear to have quickly concluded their search for a new manager, Oyston will continue to pursue candidates for the Blackpool job.
A statement from Oyston on the Blackpool website read: "I would like to place on record that the club met and discussed the manager's position with Billy Davies on Monday evening.
"I can confirm that the meeting concluded with both parties agreeing to speak again on Tuesday. I spoke with Billy on two occasions yesterday and he has decided to follow another opportunity, which is a decision we fully appreciate and understand.
"It has been well documented that we have approached a number of people regarding our managerial vacancy, in order to conduct preliminary discussions and ascertain interest from either party.
"We will continue with this process and we will continue to do so in the correct manner. However, we have only offered the position to one person and, unfortunately, that person decided to accept a position at Bristol City.
"While we continue through the process, Steve Thompson will remain in temporary charge. I would once again like to take this opportunity of thanking Steve and the rest of the football staff for their co-operation and patience during this period.
"We would like to assure our supporters that it is a priority for us to conclude this process in a timely manner and recruit the best possible candidate to progress Blackpool Football Club."