Arsène Wenger lost his proud unbeaten run in the FA Cup third round, as we crashed out of the competition at the first hurdle for the first time since 1996.
The Gunners conceded two penalties in the second half – the second of which seemed to have been scored with a double contact – to end our dreams of another FA Cup success.
Earlier Forest full back Eric Lichaj scored a rare brace - either side of Per Mertesacker's equaliser - but once again we paid the price for conceding controversial spot kicks, just as Danny Welbeck looked to have given us a lifelong late on.
Our side showed nine changes from Wednesday's draw with Chelsea, but we started brightly, looking to use the pace out wide from both Theo Walcott and Reiss Nelson on the wings.
David Ospina made a good low save from Matty Cash on 20 minutes, but the keeper was beaten moments later from close range. Kieran Dowell whipped in a fierce free-kick from a tight angle, and Eric Lichaj arrived ahead of the keeper to get the final touch.
The lead lasted barely three minutes. Reiss Nelson won a free kick on the edge of the penalty box, which Walcott sent into a dangerous area. Rob Holding headed against the post but Mertesacker coolly controlled the rebound before stabbing home the equaliser. It was the defender's 10th goal for the club, but as good as we looked going forward, the youthful Forest attack of Ben Brereton and Cash were causing problems at the other end.
Ospina was called into action a couple of times to deny Brereton, but he could do nothing about the second goal.
Holding's headed clearance only fell to the edge of the box, and Lichaj let the ball bounce before sending it straight into the top corner. The American full back is hardly known for his goalscoring record, but his first-half double had put us on the back foot at the City Ground.
We dominated possession in the early part of the second half, without creating any clear-cut chances, or working Jordan Smith.
But Forest soaked up the pressure and extended the lead from the penalty spot. Rob Holding upended Cash in the box, and for the third game in a row we conceded from the spot. The impressive Brereton dispatched the kick beyond Ospina.
Eddie Nketiah was immediately introduced, and forced a smart save from Smith with a left-footed effort in the area.
Danny Welbeck gave us a lifeline when he stroked home inside the area, after Smith dropped the ball in the area.
Welbeck then had a penalty appeal waved away shortly afterwards, but another moment of controversy ended our defence of the trophy.
Jon Moss adjudged that Debuchy had fouled Armand Traore in the area. Dowell converted, but the officials missed the fact the spot kick was a double kick, and the goal was allowed to stand.
There was time for a late red card for Joe Worrall, and Walcott couldn't quite convert from close range, as the record-breaking 13-time FA Cup winners crashed out.
What it means
Our defence of the FA Cup ended at the first hurdle. This was our first third-round defeat since losing to Sheffield United in 1996 and only our second defeat to Forest in our last 15 games.
It's a switch of cup competition on Wednesday night, as we travel to Chelsea for the first leg of the Carabao Cup semi-final. We return to Premier League action for another away game - this time at Bournemouth - on Sunday at 1.30pm.
Reiss Nelson watch
The 18-year-old had seen plenty of action so far this season, but he was used in a more advanced position at the City Ground.
7 Swaps passes with Ainsley Maitland-Niles on the left wing, but the attack fizzles out
9 Plays a one two with Danny Welbeck, then set up a chance for Alex Iwobi just outside the box, but the shot was charged down.
13 Collects the ball deep in his own half, and sprinted beyond his man, but was dispossessed by a covering tackle
17 Reiss picked up possession on the left wing, drifted in field and was inches away from releasing Theo Walcott in the box.
21 Nelson wins a free-kick just outside the area after nutmegging his man, and the Gunners equalised from the resulting setpiece.
33 Sets up Iwobi again on the edge of the area, but the Nigerian's shot was high and wide.
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