Davies was confirmed on Thursday afternoon as the new Reds boss and will take charge for his second spell after leading Forest to two playoffs between 2008 and 2011.
"It is a privilege and an honour to be back in charge of the Reds," Davies told the club's official website.
"As my new friend Fawaz Al Hasawi says I have unfinished business here at Forest and am relishing this great opportunity to return the club to its former glory.
"My tenure at the City Ground was cut short last time and I can't wait to get my boots back on and training the lads. We have a great squad and I know I can get the best from them. Coming home to The Reds is a dream come true."
Davies' faces a trip to Bristol City for his first game in charge of Forest.