The 27-year-old featured just twice for the Terriers in their maiden Premier League campaign, despite playing a big part in their promotion to the top flight.
Hefele, plagued by a niggling Achilles problem in recent times, has now exited the John Smith's Stadium for another spell in the Championship.
Forest confirmed their latest summer arrival an hour before the 5pm deadline, having reportedly pipped Aston Villa and West Bromwich Albion to the centre-back's signature.
Speaking at his weekly press conference, before the transfer was finalised, Reds boss Aitor Karanka told reporters: "He is a good character and I always like to have good characters.
"He is another player with Championship experience and with the experience of winning promotion. If we can do something, Michael can be a good player for us. It is a good chance for him and a good chance for us and, if it happens, I will be happy."