Since joining Forest from Yeovil in the summer of 2007, Davies has struggled to make a sustained impact.
He spent a spell on loan at Brighton & Hove Albion during the first half of the season and has now been allowed to look for another club.
Joining Davies in leaving the promotion contenders is Joe Heath, with the full-back having recently completed a loan stint at Lincoln City.
Winger James Reid has also been let go after just one substitute's appearance for the club, while Aaron Mitchell leaves after failing to make the breakthrough under Billy Davies.
Source: Team Talk