The Midlands-born forward has signed a four-year deal with the City Ground.
The 21-year old began his career in Nottingham with Notts County, before joining the Saints in 2004.
He was an ever-present last year for Southampton, scoring 14 goals in 50 appearances, despite the Saints' relegation.
"David was keen to sign for Nottingham as he has family connections with the city and was desperate to play in the Championship. We wish him well," said Southampton boss Mark Wotte.
"Considering the financial situation of the club, I hope people can understand the reasons why we have agreed to accept Nottingham Forest's offer, which will hopefully benefit the club as a whole."