Lewis Grabban gave Forest the lead in the first half and Sammy Ameobi scored their second in the 58th minute, before Callum McManaman pulled one back late in the contest.
After having the two goals ruled out for offside, Dan Potts and James Collins seeing efforts chalked off, the result now means Town drop down to 21st in the table with 14 points after 15 games.
Forest had the pick of the chances during the opening exchanges, but Grabban fired over the bar from the edge of the box.
Chances were few and far between until the 25th minute, when Potts thought he had given Town the lead.
Izzy Brown’s delivery into the box evaded everyone apart from the left-back, who finished at the second attempt at the far post after his initial effort had been saved by Brice Samba, before the linesman raised his flag.
Forest had a chance immediately after, but Grabban’s low effort from distance went just wide of the post.
Collins was next to test Samba but his left-footed effort was saved comfortably by the Forest goalkeeper.
Following a Town free-kick, Forest took the lead in the 39th minute after clearing the ball up-field to Grabban, who out-paced James Bree as he raced through on goal and finished calmly beyond James Shea.
First-half substitute Kazenga LuaLua led the charge for Town straight after the break, darting down the line to force a corner. From Bree’s resulting delivery, Martin Cranie got a slight touch to the ball, but Forest managed to clear away after a scramble in the box.
The away side had a great chance five minutes later as Matty Cash delivered a high ball into the box towards Joe Lolley, but he could only direct his header wide of the goal.
However, the away side did score their second goal of the game just before the hour mark through Ameobi.
Lolley’s cross from the right-hand-side found the feet of Ameobi, whose quick turn and shot deflected off Sonny Bradley before going in the back of the net.
The Hatters kept pushing to try and get back into the game as LuaLua went close in the 75th minute, doing well to cut in from the left-hand-side and force a good low save.
Town once again had the ball in the net six minutes after, but the linesman this time ruled Collins to be offside when he nodded in.
After Ryan Tunnicliffe’s close range effort was blocked, Matty Pearson hooked the ball back across for Collins to bundle in, though that joy was short-lived.
With three minutes left to play, the Hatters were rewarded for their hard work as McManaman scored to give the home crowd real hope.
LuaLua passed the ball across the box to McManaman, who produced a brilliant chop back onto his right-foot, before bending his shot into the top corner to set up a grandstand finish.
Town were searching for a last-gasp equaliser and LuaLua so nearly provided exactly it, the wide man again finding space after cutting inside, but his effort hit the side-netting.
The Hatters were denied what would have been a valuable point as Sabri Lamouchi's Forest moved up into fifth place in the Championship, with Town now switching their attention to the game against Reading next Saturday.
TOWN: Shea, Bree (Bolton 70), Bradley, Pearson, Potts, Cranie, Tunnicliffe, Mpanzu, Brown (LuaLua 33), Cornick (McManaman 59), Collins. Subs not used: Sluga, Shinnie, Jones, Butterfield.
Goals: McManaman (87)
NOTTINGHAM FOREST: Samba, Cash, Worrall, Figueiredo, Ribeiro, Yates, Watson, Silva, Lolley (Robinson 83), Ameobi (Adomah 71), Grabban (Mir 90). Subs not used: Muric, Carvalho, Chema, Johnson
Goals: Grabban (39), Ameobi (58)
Yellows: Worrall
Referee: Gavin Ward
Attendance: 10,053 (1,017 away fans)
