Freedman, who played for the east midlands club between 1998 and 2000, has previously managed in the Championship with Crystal Palace and Bolton.
Pearce's reign ended earlier in the evening, with Saturday's 1-0 home defeat to Millwall - their sixth defeat in seven matches, which left them with just one win in 11 - proving the final straw.
Pearce returned to the City Ground, where he enjoyed considerable success as a player, in the summer and had been expected to mount a promotion challenge.
However, despite a promising start to the season following a hefty spending spree, it has been a disappointing campaign and, after meeting with owner Fawaz Al Hasawi on Sunday afternoon, the 52-year-old former England captain was relieved of his duties - but has been offered an alternative position with Forest.
A club statement read: "After long discussions between owner and chairman Fawaz Al Hasawi and manager Stuart Pearce, the club has decided that Stuart will be relieved of his role as manager with immediate effect.
"Mr Al Hasawi has offered Stuart an alternative role at the club, which he is currently considering."
Pearce was appointed as Billy Davies' successor towards the end of last term, but did not take up his role until the summer.
The ex-Manchester City boss became the sixth manager to be sacked by Al Hasawi, who wasted no time in revealing the new man tasked with ensuring Forest do not get sucked into a relegation fight.
Former Dynamo Moscow manager Dan Petrescu was briefly linked with the position, with Sheffield United manager Nigel Clough, who also played for Forest with distinction, another early favourite, but a club statement later in the evening confirmed Freedman had got the job, with further details to be announced "in due course".