Carayol has previous Championship experience with the likes of Middlesbrough, Brighton & Hove Albion, Huddersfield Town, Leeds United and Forest, racking up more than 100 appearances in the division.
"The gaffer showed interest in me before I signed for Forest so as soon as I knew Ipswich were keen on me it was an easy decision," he told Ipswich's official website.
"I know a lot about Ipswich. I have played against the team a few times and know a lot of the players here. I saw Cole Skuse in Dubai a couple of years ago and he was trying to convince me to sign! I spoke to Frank Nouble a few hours back and he said 'just go there. You'll enjoy it'. Frank is a good friend of mine so I couldn't have got any better advice really.
"Forest was probably the most frustrating time of my career so I've come here to play games and I'll work as hard as I can. I want to make a big impact here and help the team. I'm here until the end of the season. That is my focus for now but hopefully I can impress the gaffer and the fans and I can show the gaffer I'm worth keeping beyond the summer."
Carayol could make his Ipswich debut away to Sunderland on Saturday.