A goal in each half, the second a penalty, from Barnsley's Malta international striker Daniel Bogdanovic sent Forest spinning to a sixth straight league defeat.
Substitute Dexter Blackstock pulled one back for Forest in the 78th minute, but Barnsley, hell-bent on keeping their own season alive, were in no mood to share the points.
The east Midlanders, who lie third in the table, have now seen an eight-point gap open up between themselves and second-placed West Brom and Davies reiterated his belief that his board of directors missed a trick by failing to sanction team-strengthening in January.
Davies said: "When you go 20 games undefeated and you go second in the league and you've got the best momentum and you're playing the best football in the division and you come off with a 3-1 result against West Brom on January 8, then, in my opinion, we needed three players.
"Now that's not an excuse, that's a fact. I said then we needed three players.
"Since then, we've lost influential club captain (Paul McKenna) and replacing him is a must."
Davies added: "Whatever happened in January was entirely up to the owners of the club. All I could do was recommend and advise and unfortunately things never happened.
"But as a manager I will always do the best I can with what I've got and between now and the end of the season I will work as hard as I can to continue to keep this young team and stay bright, happy and bubbly and positive."
Davies had nothing but praise for his players and insisted Rob Earnshaw's 'goal' scrambled home in the last minute should not have been ruled out for pushing by Leicestershire referee Kevin Friend.
Forest, for whom McKenna is one of several key players currently out injured or carrying a knock, have lost an alarming amount of ground in a short space of time in the race for a top-two finish.
Six successive away defeats, seven if you count the FA Cup defeat at Birmingham, have seen West Brom first overtake and then accelerate away into an eight-point advantage.
Davies added: "I always feared March, April and May. Having been here before and having the experiences I've had I always knew that when you've got momentum, it's important to add to the squad."
Barnsley, thrashed 6-1 at Newcastle 10 days ago, began the day half a dozen points adrift of the play-offs, but will soon have top-six contenders looking over their shoulders if they can maintain this level of performance.
Manager Mark Robins now wants his side to hit the same heights they reach against the Championship's top sides when they face the division's lesser lights.
Robins said: "We really deserved it and should have gone on and scored another one, maybe two, had the decision-making been a bit better.
"But I can't complain. That's me nit-picking again. We want everything to be better and to improve all the time.
"It's a result I'm delighted with. Tonight we've taken two out of four chances and that's the ratio I'm looking for.
"We know all about our character. It's not a surprise. We've become a team that's known to take the scalps of teams at the top of the league and possibly not hitting those heights when playing teams at the bottom of the league.
"That's got to change, we've got to maintain the form we've shown over the last couple of weeks because there's a lot left to play for."
Coca Cola Ch'ship Promotion 09/10 Win Outright: Nott'm Forest 5/2
Source: Team Talk
Source: Team Talk