The Al-Hasawi family took control of Forest on Tuesday and opted to dispose of Cotterill following a meeting in London on Wednesday.
Cotterill was appointed in October and kept the club in the Championship during what was a difficult season for the club.
"Nottingham Forest can confirm that manager Steve Cotterill has departed the club with immediate effect," read a club statement.
"Mr Cotterill met with the club's new owners, the Al-Hasawi family, yesterday and after long deliberations they have decided to make a new appointment in a bid to deliver their long-term vision.
"The club would like to acknowledge their gratitude to Mr Cotterill for guiding it through an extremely difficult and traumatic period and for retaining the side's Championship status last season.
"The club will be making no further comment at this time."
Rob Kelly has been placed in temporary charge and has taken pre-season training.
A statement on the club's official website said: "Nottingham Forest have placed assistant manager Rob Kelly in temporary charge of team affairs following the departure of Steve Cotterill. The club can also confirm that the pre-season tour of America has been cancelled."
Former Tottenham boss Harry Redknapp emerged as one of the bookies' favourites to fill the vacancy shortly after news of Cotterill's departure broke, but the 65-year-old, a good friend of Cotterill, told the BBC: "I am not interested, but it's an amazing club with great tradition. I'm sorry to see Stevie Cotterill lose his job."
A number of other names remain in the frame for the job, including former Birmingham boss Alex McLeish, ex-Wolves manager Mick McCarthy, Peterborough's Darren Ferguson and former Forest player Roy Keane.