The Reds have beaten several of their Sky Bet Championship rivals to the signature of the Wales international, who will remain at the City Ground until January 29, 2014.
Vaughan has been overlooked by Gus Poyet since the Uruguayan became manager at Sunderland and will hope to use his time with Forest to impress the former Brighton boss.
The 30-year-old, out of contract next summer, has not featured for the Black Cats since a 3-1 Barclays Premier League defeat to Arsenal in September.
Forest are one of the favourites for promotion this season and currently sit sixth in the table, six points shy of the automatic promotion places.
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