Dyche is in line to become the third manager of Forest’s season, with confirmation possible later on Monday, following the sacking of Ange Postecoglou.
The former Forest trainee has held talks with owner Evangelos Marinakis and is understood to be relishing the prospect of an emotional return to the City Ground.
Dyche was always likely to emerge as the favourite, if Postecoglou was dismissed.
Postecoglou’s tenure was brutally brought to an end 18 minutes after the 3-0 home defeat by Chelsea. His spell in charge lasted just 39 days.
Forest have considered other options, with Fulham’s Marco Silva one name high on their list. However, Silva will require at least £8m in compensation and is out of contract next year.
Roberto Mancini, the former Italy and Manchester City manager, was also pushed by Forest’s global head of football Edu Gaspar, but negotiations never advanced.
Steve Cooper was also considered by Marinakis, but Forest’s promotion hero of 2022 is now working at Danish club Brondby.
Dyche is now inching closer to the job and set to take charge for the first time in the Europa League match at home to Porto on Thursday. His assistants are likely to be two former Forest players in Ian Woan and Steve Stone.
Dyche has been out of the technical area since he departed from Everton in January this year. He operated under extremely difficult circumstances, which included two points deductions for breaches of financial rules.
He is regarded as the best fit for Forest’s current squad, with senior officials keen for a return to the defensive solidity which became a major strength under Nuno Espírito Santo.
Despite that reputation for clean sheets last season, the club have not secured a shutout since April 1.
Dyche was on the books at Forest between 1987 and 1990, and has always been respectful of his education under the legendary Brian Clough.
He told the BBC: “When I became a manager, I started reflecting back. As a person and footballer, I learned so much during that period of my life.
“When the boss spoke, you were listening. He had this amazing thing that when he told you that you did well, you just felt 10ft tall and couldn’t fit through the door, but if he told you that you didn’t, you could go under the door with a top hat on.”
After the visit of Porto, Forest face Bournemouth and then Manchester United.