The former England U21 boss turned down the role last week due to family reasons, but has agreed to take charge of the Championship side at the end of the season.
Forest have been looking for a successor to Billy Davies, who was sacked last month after a string of poor results threatened to derail the club's promotion campaign.
A humiliating 5-0 defeat by rivals Derby County prompted Davies' departure and former Leeds manager Neil Warnock was considered an early front runner for the role before he ruled himself out.
Reserve team coach Gary Brazil is expected to remain in caretaker-charge of Forest, who are currently seventh in the table, two points outside the play-off places.
You can watch the Nottingham Forest press conference, live on Sky Sports News this afternoon.