The former England manager quit shortly after Forest were beaten 3-1 by Birmingham at the City Ground.
McClaren was feeling slightly happier when Ishmael Miller put Forest on course for a first home win of the season.
But Birmingham, back in domestic action after their Europa League win over Maribor, hit back in the second half through Chris Burke and Chris Wood, who scored twice to leave the Forest fans calling for the head of the manager.
McClaren had only been at the City Ground since June but, in the aftermath of Sunday's defeat, tendered his resignation to chairman Nigel Doughty, who went on to confirm he would step down from his role at the end of the season.
Forest, who lie just one point and one place above the npower Championship relegation zone, have already started the search for McClaren's successor.
McClaren, who was vilified by England fans after he failed to qualify for Euro 2008, had rehabilitated his reputation somewhat during a successful spell with FC Twente but came to Forest having been sacked by German side Wolfsburg.
The club released an official statement shortly after news of McClaren's departure broke, confirming that despite being only three and a half months into a three-year contract, he would not be claiming any compensation.
The statement read: "Nottingham Forest can confirm that Steve McClaren has resigned from his role as manager.
"He has left the club without compensation - nor will he be seeking any. The club can confirm that the search for a new manager will begin immediately.
"Mr Doughty has also announced his intention to step down as chairman of the club at the end of the season after 10 years in the role.
"The search for a new chairman will commence immediately."
Forest also confirmed that Doughty's resignation as chairman would have no immediate bearing on his financial commitments as owner of the club.
"He will continue to support the club financially through the implementation of financial fair play rules, which are expected to be introduced in the Championship next season," the statement added.
McClaren endured a torrid run with a Forest side expected to challenge for promotion, with his lowest moment coming in Tuesday's 5-1 hammering at Burnley.
That result raised serious questions over McClaren's future but, after David Pleat was removed from his part-time consultancy role in midweek, he appeared set to remain at the helm for the foreseeable future.
It became apparent that the manager's position was being discussed when McClaren did not emerge for the post-match press conference following the Birmingham match and the conclusion of those talks was soon revealed.
After serving as Sir Alex Ferguson's assistant at Manchester United for two years - during which time they won an unprecedented treble - McClaren established himself as one of England's brightest managerial prospects at Middlesbrough.
Under his stewardship, the Teesside club won the League Cup - their first major honour - in 2004 before going on to reach the UEFA Cup final two years later.
That night ended in disappointment as Boro lost 4-0 to Sevilla, yet McClaren's reputation was largely unaffected and, having worked as Sven-Goran Eriksson's assistant with England, he was confirmed as the Swede's successor after the 2006 World Cup.
He endured some poor results in the top job and failure to reach the finals of Euro 2008 saw him removed from office with a major question mark against his name.
Just months later, he moved to Holland to take the reins at Twente, where he won the Dutch title in his second season.
McClaren took over at Wolfsburg in May 2010 but, after being sacked less than a year later, returned to English football with Forest.