Keane had been strongly linked to the role since Martin O'Neill, another former Forest midfielder, was named manager this month following the departure of Aitor Karanka.
The 47-year-old Keane was at the Championship club's training ground on Monday.
"We are delighted to confirm Roy Keane has returned to the club as assistant manager," Forest said in a statement on their website.
"He joins Martin O'Neill's backroom staff with immediate effect."
Keane spent five years as O'Neill's assistant with the Ireland national team before they left the roles in November having won only once in 11 games and being relegated from UEFA Nations League B.
Keane was signed for Forest in 1990 by manager Brian Clough, establishing himself as a complete midfield player before moving to Manchester United in 1993.
During 12 years trophy-laden years at Old Trafford, Keane won seven Premier League titles, the Champions League and four FA Cups. He earned 67 caps for Ireland.
Keane led Sunderland back to the Premier League in 2007 and managed Ipswich Town in the Championship before becoming Ireland assistant coach in 2013.
Nottingham Forest are ninth in the Championship with 42 points, four points off a playoff spot. They play Birmingham City away on Saturday.
(Reporting by Martyn Herman, editing by Ed Osmond)
