The Romanian spent the second half of last season on loan with Aitor Karanka's side, keeping four clean sheets in 13 appearances.
His performances were seemingly enough to impress Karanka, who has now sanctioned the paying of an undisclosed fee to Waftord to sign the 31-year-old permanently.
Speaking on Watford's offically Twitter account, Pantilimon said: "I am very happy. I really wanted to come back.
"I appreciate the club and I appreciate the people who did this to make it possible."
The Romania international becomes Forest's seventh signing of the summer as they seek to build a squad capable of winning promotion from the Championship.
Pantilimon has signed a three-year deal at the City Ground, where he will hope for more first-team football after spending much of his career in England as back-up.
July 3, 2018