Owners Fawaz Al Hasawi and Abdulaziz Al Hasawi say they have made the decision because they want a manager with "Premier League experience".
O'Driscoll, who left Crawley in the summer to take over at the City Ground, leaves Forest eighth in the table.
Reds chairman Fawaz Al Hasawi admits the timing of O'Driscoll's departure is unfortunate.
He told the club's official website, nottinghamforest.co.uk: "We cannot speak highly enough of Sean as a man.
"He was appointed at an extremely difficult time for the club and can count himself unlucky to have lost his job with the team just one point away from the top six.
"But we have a responsibility to look to the future for this great club because we have huge ambitions for it.
"We knew when we bought the club in the summer that it would take time for the players we bought in to settle but that process has taken longer than we anticipated.
"We feel we have developed a really strong squad of players but are still searching for consistency in terms of team performance, underlined by the fact that we have not won more than two games in succession in the Championship this season.
"And with the January transfer window approaching, we feel it's the right time to make a change.
"We are looking to bring in an ambitious manager with Premier League experience."
- Sports & Recreation