The 47-year-old has departed the City Ground after less than a year in charge following the recent takeover of the Kuwaiti-based Al Hasawi family
The 47-year-old signed a three-and-a-half-year deal with the Championship club in October 2011 but has been sacked following a takeover by the Al Hasawi family.
It is thought that Cotterill met with the club's new owners on Wednesday and, after lengthy discussions, the Kuwaiti-based group have decided to appoint a manager who better suits their long-term plans.
A club statement read: "The club would like to acknowledge their gratitude to Mr Cotterill for guiding it through an extremely difficult and traumatic period and for retaining the side's Championship status last season.
"The club will be making no further comment at this time."
Forest avoided relegation by 10 points last season under Cotterill's guidance, after he succeeded former England boss Steve McClaren at the City Ground following a disastrous start.