The winner came from Darren Wrack, in added time, when the Forest defence were unable to clear a cross from Jorge Leitao.
The victory was no more than Walsall deserved for a hardworking performance, although Forest had battled all the way.
Walsall took a deserved 25th minute lead in a dramatic incident that proved to be a double blow for Forest.
Fitzroy Simpson floated over a corner which Danny Hay headed goalwards and defender Jon Olav Hjelde was forced to handle on the line.
The Norwegian was shown the red card and Danny Sonner struck home the resultant penalty.
Walsall had enjoyed the better of the early exchanges and should have increased the lead.
In the 53rd minute Wrack was brilliantly set up by Steve Corica, but shot well over and just a minute later Corica himself saw a shot brilliantly saved by Darren Ward.
Although Forest had fewer chances, they never gave up and one shot from David Johnson was brilliantly kept out by Jimmy Walker.
Forest thought they had snatched the point in the 83rd minute when a shot by David Prutton from the edge of the box was deflected wide of the helpless keeper Walker.
But Walsall had other ideas and in added time a cross from Leitao proved too difficult for the Forest defence to handle and Wrack tapped home from close range.
Afterwards Wrack said: "I was pleased to see it go in. Things didn't go for me but if you keep persevering you eventually get something.
"We're delighted with three points and we would have been very disappointed with a draw."