This season has been a difficult one at the higher level and today's defeat to Doncaster, who are now below them on goal difference, has led to his departure.
Chief Executive Mark Arthur said: "We're grateful to Colin for his efforts over the last two and a half years, in particular for leading us to promotion from League One. But we are in a results business and it is imperative that the club stays in the Championship. We need to give ourselves every opportunity to do that."
Also leaving Forest is Caldwerwood's number two David Kerslake which will leave them with a caretaker manager for the trip to Norwich on Sunday.
Forest become the fifth Championship club to change manager this season along with QPR, Watford, Charlton and Blackpool.