The Championship club, still chasing promotion, have brought their former skipper back to the City Ground, with the 51-year-old describing the job offer as a "massive honour"
The 51-year-old has been handed a two-year deal, though he will not take over from caretaker boss Gary Brazil until July 1.
Pearce is delighted to be handed the reins at Forest, whom he joined as a player in 1985, and is keen to unite a side who had become fractured under axed boss Billy Davies.
"Coming back to this club is a massive honour for me but I'm aware what I've achieved as a player is now irrelevant," he enthused at his unveiling.
"My job is to galvanise a team the fans can be proud of. We want to play a good brand of football.
"I was very impressed that the chairman wanted to take an interest in the football club. That for me is a real plus.
"I want the club to be at one. In my time at Nottingham Forest one of our strongest points was our togetherness.
"I think the academy is the lifeblood of any football club. I want to nurture our young talent."
Club owner Fawaz Al Hasawi added: "I am delighted to have Stuart with us. He is a very good manager and I wish him all the best with us. I was waiting to pick the right manager and Stuart is that man."
Forest are currently seventh in the Championship and two points off the play-off places with seven games remaining.