The 22-year-old, who had a previous stint with the League One side earlier in the season, was scheduled to remain with the Saddlers throughout January.
But Alex McLeish has now elected to bring the shot-stopper back to the City Ground to bolster his options due to uncertainty over the future of Lee Camp.
A statement on Forest's official website read: "Karl Darlow has been recalled from his loan spell at Walsall.
"He will be available for selection in this Saturday's match against Peterborough at The City Ground."
Camp is expected to leave the City Ground with his contract due to expire at the end of the season having elected not to accept the fresh terms on offer.