The former Doncaster boss has been relieved of his duties at the City Ground hours after they beat Leeds United to move up to eighth place in the Championship table
O'Driscoll leaves Forest in eighth position in the second tier after the Boxing Day win fired them to within one point of the playoff places.
Forest chairman Fawaz Al Hasawi, who announced the decision on his Twitter account, admitted that the former Doncaster boss was unfortunate to lose his job.
"We cannot speak highly enough of Sean as a man," he said in a club statement. "He was appointed at an extremely difficult time for the club and can count himself unlucky to have lost his job with the team just one point away from the top six.
"But we have a responsibility to look to the future for this great Club because we have huge ambitions for it."
He went on to explain that the Kuwaiti ownership group had taken the decision to relieve O'Driscoll of his duties because of a lack of consistency shown by the first team this season.
"We knew when we bought the club in the summer that it would take time for the players we bought in to settle but that process has taken longer than we anticipated," he continued.
"We feel we have developed a really strong squad of players but are still searching for consistency in terms of team performance, underlined by the fact that we have not won more than two games in succession in the Championship this season.
"And with the January transfer window approaching, we feel it’s the right time to make a change. We are looking to bring in an ambitious manager with Premier League experience."
Abdulaziz Al Hasawi, also part of the family that took over the club in the summer, acknowledged that the move would come as a surprise after the victory against Leeds.
"The timing of our decision may look a little odd after the win over Leeds but sometimes you need to make changes with the long term future in mind," he insisted.
"Sometimes those changes need to be made from a position of strength rather than weakness and that is what we are trying to do."