The former Middlesbrough boss's position had been under threat for months, despite the club being four points outside the play-off places.
And the Spaniard, 45, has now left the City Ground, with first-team coach Simon Ireland taking over as caretaker.
A club statement read: “Aitor Karanka has asked to be released from his contract as the manager of Nottingham Forest Football Club.
“The club have agreed to this request and the terms of departure have been agreed. Both parties wish each other every success for the future.
“There will be no further comment from either party.
“Simon Ireland will take charge of first-team affairs until a new manager is appointed.”
Karanka's final game in charge ended up being a 2-0 FA Cup defeat to Chelsea, which came on the back of a 4-2 win over leaders Leeds.
And Forest will now begin the hunt for a new manager who can return the team to the top flight.
Tomorrow's trip to Reading will be Ireland's first mission, with Bristol City visiting a week later.
Promotion is still within reach this season as Middlesbrough and Derby are just four points clear of seventh-placed Forest.
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