Anthony Knockaert's injury-time goal sent the 2,025 travelling Foxes - and the visiting bench - berserk in celebration as they edged Bolton out of the top six, with the Trotters drawing 2-2 at home to Blackpool.
Simon Cox gave Nottingham Forest an early lead but goals from Matty James and Andy King sent Leicester into half-time ahead.
Elliott Ward levelled things up against at the start of the second half before Knockaert settled matters late on.
Forest flew out of the blocks. Andy Reid went close after two minutes with a curling free-kick which brushed the top of the net on its way over.
It was from Reid's left-wing cross that the Reds took the lead. Henri Lansbury knocked the ball down and Cox reacted quickest to score from six yards out.
Leicester responded well and Knockaert was beginning to look menacing. The French winger curled a couple of efforts narrowly wide after cutting inside from the right on to his left foot.
Forest goalkeeper Karl Darlow then had to push a fierce 25-yard strike from David Nugent over the crossbar.
The goal Nigel Pearson's side had been threatening came midway through the first half. Forest fell asleep at a corner, allowing Lloyd Dyer and Matty James to work a short routine and the latter beat Darlow at the near post with a shot from just outside the area.
The Foxes eventually made the breakthrough three minutes before half-time after more brilliance from Knockaert.
After beating his man down the left, the Frenchman stood the ball up at the far post and Andy King headed into the roof of the net from two yards out.
Forest might have gone into the break level had it not been for Kasper Schmeichel's save from Lansbury's point-blank header and a goalline clearance from Jeff Schlupp.
Forest began the second half as they started the match - with a goal. Reid curled a free-kick to the far post where Ward headed home from inside the six-yard box.
But, as it had in the first half, the pendulum looked to be swinging back in Leicester's favour. Chris Wood scuffed a chance inside the box before an almighty goalmouth scramble needed Lansbury to clear off the line after Darlow had made a brave block.
With the scores filtering through from the Reebok Stadium and Selhurst Park, the importance of a winning goal for both sides was not lost on any of the 28,646 inside the City Ground.
With 10 minutes remaining, Cox strained every sinew to get on the end of Dan Harding's throughball but he was beaten to it by Schmeichel.
Forest were the team that looked most likely to nick a winner as they poured forward with wave after wave of late attack.
But in the end their eagerness to do so cost them as Leicester pinched the ball and attacked with the Reds short at the back.
Wood fained to shoot and squared the ball to Knockaert who had the simple task of tapping into an empty net from close range.
- Sports & Recreation
- Anthony Knockaert
- Henri Lansbury
- Matty James