Forest will pay a fixed fee of around £34.3m (€40m) for the 22-year-old centre-back after weeks of negotiations.
Head coach Oliver Glasner drove the club's interest in Diomande after trying to sign him at his former side Crystal Palace.
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Diomande has spent the last four seasons at Sporting, playing 132 times, scoring seven goals and winning the Primeira Liga twice.
He helped Sporting reach the Champions League knockout stages and win a domestic double in the 2024/25 season, while being part of the Ivory Coast squad that won the 2023 Africa Cup of Nations for the first time in eight years.
Diomande has earned 15 caps for his country and made one appearance at this summer's World Cup.
On signing for Forest, Diomande said: "I am very happy to be here. It is a historic club, and it motivates me to join such a club. I believe we can achieve very good things this season and I am looking forward to meeting the players and head coach.
"I will give my best and all I can to help the team. I cannot wait to meet the supporters at the City Ground and together we can have a good season."
Chief football officer George Syrianos added: "We have been very clear on the profile of player we want to add to the squad, so we are excited to welcome Ousmane to the club.
"He has fantastic experience for a defender of his age. Playing a crucial role in title-winning teams and going into the latter stages of the Champions League puts him in a great position to integrate well here at Forest.
"Ousmane is a powerful, commanding defender, and arrives here with a winning mentality. He shares the same ambition for success we have, and we are excited to see the impact he can have in a Forest shirt."
Nottingham Forest transfers
In
Ousmande Diomande - Nottingham Forest, £34.3m
Boyd Fraser - Hearts, undisclosed
Mason Ayre - Glentoran, undisclosed
Blaine McClure - Rangers, undisclosed
Xaver Schlager - RB Leipzig, free
Grady McDonnell - Club Brugge, free
Kasen Brown - Man City, free
Out
Elliot Anderson - Man City, £116m
David Carmo - Olympiacos, undisclosed
Joe Gardner - Falkirk, undisclosed
Cormac Daly - Hearts, free
Angus Gunn - San Jose Earthquakes, free
Ben Hammong - Boston United, free
Justin Hanks - Solihull Moors, free
Danny Anisjko - Chesterfield, free
Jota Silva - Olympiacos, loan
Willy Boly - released
Stefan Ortega - released
Shae Cahill - released
Esapa Osong - released
