The Reds have agreed to pay an undisclosed fee for the 22 year old left winger, who has signed a three-and-a-half year contract.
McLaughlin caught the eye of Forest’s scouts with a string of impressive performances in the League of Ireland.
He spent a week on trial at The City Ground last month and convinced the Club to make a move for his services.
Chairman Fawaz Al Hasawi said: “Stephen is an exciting young talent who been attracting attention from a number of other English clubs.
“We are delighted he is joining us and look forward to helping him develop his career and fulfilling his great potential.”