Owner Fawaz Al Hasawi took the decision after Saturday's home defeat against Millwall and a long discussion with Pearce on Sunday.
A short statement confirmed the news and also that the City Ground hero had been offered an alternative role with the club.
Pearce's departure was not unexpected given the rapid turnaround in managers, both at Forest in recent seasons and in the Championship in general.
The battle to get into the Premier League, with its accompanying riches, means it is the most difficult of divisions for people to be able to lay down any kind of long-term vision.
Pearce may or may not have been a success as Nottingham Forest manager if given two or three seasons to be so.
Supporters were willing him to be the man to take the Reds back to the top-flight of English football and, although able to be critical of some of the tactical decisions taken over the past couple of months, will be disappointed to say the least that things had to end this way.