"It's brilliant, I'm really pleased," Harding told the club's official website.
He said: "I spoke to the gaffer and liked what he had to say. I'm really excited."
Harding made 25 appearances for Southampton last season as they secured promotion to the Barclays Premier League.
Forest Chairman Omar Al Hasawi told the club's official website: "We're delighted with the way things are taking shape.
"Like Adlene, Danny and Greg, Dan is an experienced performer and knows what it takes to gain promotion from the Championship."