David Cotterill's early goal put the home side in front at St Andrew's but the main drama in the game came in the final few minutes and centered around Britt Assombalonga.
The striker levelled the scores for Forest on 84 before conceding a penalty and being sent-off in the final moments.
Paul Caddis stepped up to convert from the spot and continue Birmingham's good run of form under new manager Gary Rowett.
The result pushes Stuart Pearce's side back down to 9th in the Championship table after a frustrating afternoon for the Reds boss who threw Tom Ince, Jamie Paterson and Dexter Blackstock into the fray in the second half as his side chased an equaliser.
Forest have a week to lick their wounds before hosting Charlton Athletic at the City Ground next Saturday afternoon.
A full match report is available on our sister site www.football.co.uk