In-form Colchester dominated this contest and they deservedly took the lead in the 71st minute thanks to a cracking goal from Neil Danns.
Midfielder Danns cut inside defender Ian Breckin before unleashing a shot from the edge of the box that gave keeper Paul Gerrard no chance. It was Danns' seventh goal of the campaign.
Forest had offered very little in attack all afternoon and yet they conjured up an equaliser in the last minute of normal time.
Striker Nathan Tyson sprung the Colchester offside trap by running on to a through ball from substitute Jack Lester before sliding the ball past keeper Aidan Davison.
Yet Colchester rallied in remarkable fashion. Just seconds after Tyson's equaliser they regained their lead with a slick finish from Mark Yeates in the first minute of stoppage time.
Left winger Yeates pounced on to a flick by fellow striker Chris Iwelumo to lift the ball over Gerrard and into the net despite the best efforts of Nicky Southall on the Forest line.
It was Yeates' third goal in just three days following his double to sink former leaders Brentford at Griffin Park on Saturday.
There was no way back for Forest who have only won once on their league travels all season.
And they had salt rubbed into their wounds when striker Richard Garcia produced a killer third goal in the last minute of injury time.
Australian born Garcia was released by Kem Izzet and seemed to be heading towards the safety of the corner flag, no doubt to run down the clock.
However, Garcia changed his mind and slipped inside a couple of defenders before beating Gerrard with a rising shot from 20 yards out.
Colchester have now lost just one of their last 15 league and cup matches and their only reverse came after an injury time goal at lowly Swindon on Boxing Day.