Rangers boss Stuart McCall says he feels sorry for Gael Bigirimana, but admits he should never have been signed.
Chris Gunter will stay at Reading, after the club took up the option to extend his deal by another year.
Blackstock, who has fallen out of favour at the City Ground, will remain at Elland Road until 25th January.
He will be hoping to get important game time under his belt with the Whites, with just three outings made for Forest this season - and two of them coming in the Capital One Cup.
The 27-year-old is a proven second tier performer, having previously turned out for the likes of Derby County and Queens Park Rangers, and provides a considerable physical presence at the head of any attacking unit.
Leeds boss Brian McDermott is delighted to have brought a player of Blackstock's calibre on board after openly admitting to being in the market for another frontman.
He told the club's official website: "I've known Dexter for a long time, being brought up in Oxford. I'm really pleased we've managed to secure his services.
"He's a really good age for a striker and I'm sure he has many good years in front of him. We are all really looking forward to working with him."