Right-back Reyes, 27, has put pen to paper following his release from West Brom and returns to the City Ground, where he enjoyed a successful loan spell last season, making 17 appearances.
Forest manager Billy Davies is delighted to have secured Reyes' services.
He told the club's website: "I am very pleased Gonzalo has agreed to join us for next season.
"He made a terrific impact while on loan with us last year and it was hugely disappointing to lose him to injury at such a crucial stage in the campaign.
"He gives us real strength in depth and brings with him an abundance of experience from the top level of the game."
Reyes made 29 appearances for the Baggies in their 2010-11 Premier League season, scoring in a 3-2 victory against Arsenal, but only featured twice last term.
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