Blackstock struck just before the interval to knock the Magpies off their perch - they are level on points with West Brom, who beat Reading 3-1 at The Hawthorns - but trail the Baggies on goals scored.
The hosts had Blackstock's goal to show for a dominant first-half display and then held off a spirited fightback after the break to register their fourth successive win.
Newcastle had a Kevin Nolan goal disallowed but otherwise struggled to create chances and, following their fine start to the season, are now winless in three games.
In-form Forest, by contrast, came out flying from the first whistle and Newcastle goalkeeper Steve Harper adjusted quickly to claw away Blackstock's third-minute header before keeping out Radoslaw Majewski's curling effort.
The home side continued to dominate and came agonisingly close to taking the lead in the 13th minute when Majewski's corner was headed against the post by Blackstock.
Newcastle almost went ahead against the run of play when Ryan Taylor delivered a teasing cross and former Forest striker Marlon Harewood sidefooted his effort against the post from six yards.
Andy Carroll fired wide and Harewood headed over, but the Magpies laboured in front of goal while Forest were doing everything but score at the other end.
Paul Anderson was denied by Harper and fired another opportunity wide, with Nathan Tyson and Blackstock also missing the target.
But the goal Forest deserved came on the stroke of half-time when Majewski played a through-ball which split the Newcastle defence and Blackstock beat the offside trap to lift the ball over the advancing Harper before seeing it trickle into the net.
Peter Lovenkrands should have done better with Newcastle's first chance of the second half, blazing over the top after being teed up by Kevin Nolan.
Harewood, desperate for a goal on his return to the City Ground, then turned sharply in the area but was denied by a fine block from Kelvin Wilson.
The visitors were denied an equaliser in the 69th minute when Taylor's cross was flicked on by Alan Smith into the path of Nolan.
The former Bolton midfielder stretched out a leg to turn the ball past Lee Camp but his celebrations were cut short by an offside flag.
Toon boss Chris Hughton threw on substitute Nile Ranger, but the youngster blew the chance to earn his side a point when he put a simple header over the crossbar.