Southampton will not accept offers for forward Jay Rodriguez or midfielder Morgan Schneiderlin this summer.
Everton forward Kevin Mirallas has hinted that he will sign a new contract at Goodison Park in the summer.
Forest Chairman Omar Al Hasawi told the club's website: "Greg is another important component in the squad that Sean is assembling and we're delighted he chose to join us."
Halford, who can operate at the right and centre of defence, as well as in midfield or as a striker, made his name at Colchester before making moves to Premier League sides Reading and Sunderland.
He later had loan spells at Charlton and Sheffield United before joining Wolves in 2009, and eventually made his move to Fratton Park permanent after a successful loan spell.