The 26-year-old, who joined the Club in January, will link up with former Saints teammate Dan Harding at the City Ground.
Sharp moved to Southampton from Doncaster Rovers at the end of the last transfer window, scoring nine goals in 15 games as his new team secured promotion to the Barclays Premier League.
He scored five goals during pre-season and also netted in Tuesday's Capital One Cup second-round win over Stevenage.
However, the arrival of Emmanuel Mayuka and return to fitness of Tadanari Lee means that starting opportunities could well be limited for the frontman this season.
As such, he has been allowed to join up with his former Donny boss Sean O'Driscoll in Nottingham for the rest of the 2012-13 campaign.
Saints would like to wish Billy all the best during his year with Nottingham Forest.