The process to appoint a new manager was led by Forest’s global head of football Edu Gaspar and global technical director George Syrianos.
Former Italy and Manchester City boss Roberto Mancini also held discussions with Forest about the post, while Fulham manager Marco Silva was also known to be admired by the club.
“A respected and experienced Premier League manager, Dyche brings the perfect blend of character, tactical acumen and proven achievement to guide the club through its next chapter,” said a Forest statement.
“As a former Forest youth player who lives locally, Dyche also has a deep understanding of the values and pride of Forest and its supporters.
“His appointment represents the best opportunity for a successful and competitive season across both domestic and European competitions.”
Dyche’s coaching staff will include Ian Woan and Steven Stone, who both played for Nottingham Forest.
“It’s a mess isn’t it?” said Sport football pundit Chris Sutton on the Monday Night Club before Dyche’s appointment was confirmed.
“If Dyche gets over the line it is an admission that they got it wrong with Ange Postecoglou and are thinking about survival.
“Dyche has always managed clubs where it has been a struggle. He bucked the trend at Burnley and got the best out of the players he had and proved himself to be an extremely capable manager.
“At Everton he took over a team in trouble and stabilised the club. He had points deductions to contend with.
“Forest want to stay in the league so it seems a sensible appointment. They won’t go down, they have too many good players.”
