Lolley scored the first goal with a brilliant free-kick and set up the second for Lewis Grabban, to give Sabri Lamouchi's side a comfortable 2-0 lead at the interval.
But that was a minor criticism, as the Reds notched up the first Championship win of Lamouchi's tenure, in hugely impressive fashion.
Forest had to defend stoutly as Birmingham won a couple of early corners and pushed their big men forward.
But it was from a set-piece that Forest took the lead in the 15th minute. Ivan Sunjic was booked for a late challenge on Jack Robinson and Lolley delivered further punishment, as he lashed a powerful shot into the bottom corner of the net from the resulting free-kick.
Former Reds keeper Lee Camp did get something on the ball, but not enough to keep it out, with Lolley celebrating in front of the Blues supporters.
Seven minutes later, Camp was picking the ball out of the back of the net for a second time, as Lolley this time turned provider.
The winger did well to find space on the right, before lifting a delightful lofted cross towards the far post, where Grabban rose to plant a simple header back across goal and inside the far post, with Camp a helpless bystander.
Forest were intent on turning the screw, with Sammy Ameobi showing great strength to follow on from a quality first touch, as he brought the ball down on his chest before beating Maxime Colin for pace, with the former Bolton man only denied a goal by a strong save from Camp at his near post.
The second half began with Aro Muric forced into his first meaningful save, but it was a simple one as Lukas Jutkiewicz looped a header towards goal. Jutkiewicz was the only real source of threat for the Blues, with the big forward then prodding another half-chance wide.
It was Forest who added to their tally, from a corner, as skipper Dawson arrived purposefully to force a downward header over the line as he attacked Tiago Silva's delivery in the 65th minute.
Samba Sow headed inches wide as Forest went in search of a fourth goal, while Ameobi was guilty of missing a sitter. Grabban then spurned another good headed chance and sub Rafa Mir narrowly cleared the bar with a spectacular effort.