The victory at Villa Park takes Unai Emery's side five points clear of Tottenham Hotspur in the race for the top four, while Forest remain just four points above Luton Town, who are the first side below the dotted line.
After going three goals down in the first half, the visitors put on a much better showing in the second period, cutting the deficit to 3-2 with goals from Moussa Niakhate and Morgan Gibbs-White, but squandered a few very presentable chances late on and were made to pay for their wastefulness.
Emery opted for an unchanged lineup to the side he fielded in their 2-1 win over Fulham last week, while Nuno Espirito Santo made just one change from his team selection against West Ham United, with Niakhate replacing Nuno Tavares, who was left out of the squad for today's trip to Villa Park.
Aston Villa, who were in a slight slump following back-to-back defeats to Chelsea in the FA Cup and Manchester United in the league a few days later, managed to get back to winning ways with a victory over Fulham last weekend and came flying out of the blocks this afternoon.
Bailey, who is enjoying an extended spell in the starting 11, looked particularly menacing during the opening exchanges, and it took just four minutes for the winger to create the first chance of the afternoon, bamboozling Niakhate down the right flank before rolling a perfect ball across the six-yard box for Watkins to tap in.
That strike marked the England international's 14th league goal of the 2023-24 Premier League season and was also Villa's 25th first-half goal in 26 games, which is more than any other side in the top flight this season.
Watkins almost doubled his side's advantage just five minutes later when Jacob Ramsey picked him out with a cross into the centre, which he fired at goal from 12 years out, but Niakhate managed to throw himself in the firing line to block the attempt that was clearly heading for the target.
Forest were evidently struggling to keep up with their opponent's slick passing, and the hosts continued to dictate the flow of the game leading up to the half-hour mark when Matty Cash bombed down the flank and put a good ball into the box that fell to Ramsey, who set up Luiz for the Villans second goal of the afternoon.
As halftime approached, it seemed as though Villa had wrapped up the match as John McGinn recycled a corner and whipped in a dangerous right-footed cross into the opposing penalty area, which Luiz got on the end off and powered home a header to claim his second of the afternoon and Villa's third.
With that, Forest have now conceded a total of 23 first-half goals in their 26 games so far this season, putting them behind only Burnley and Sheffield United, who have both conceded 26 goals in the first half.
However, the visitors got a lifeline at the stroke of half time when they earned a corner, which was headed back across goal and fell to Niakhate, who made no mistake with a close-range finish.
Santo rang the changes at the break, bringing on Divock Origi, Harry Toffolo and Andrew Omobamidele for Murillo, Felipe and Taiwo Awoniyi, respectively, and Origi made an instant impact as he picked out Gibbs-White in the box, who clipped a beautiful shot into the far corner to cut the deficit to a single goal just two minutes after the restart.
The visitors were by far the better side in the early stages of the second half and should have drawn level in the 50th minute when Nicolas Dominguez put Anthony Elanga clean through on goal, but the former Manchester United man lacked the composure needed and dragged his shot off target.
With Forest pushing for an equaliser, Villa began to find space in transition and got a much-needed fourth goal to settle everyone down through Bailey, who got on the end of a Watkins attempt that deflected off Matz Sels and fell perfectly into his path. He made no mistake with the finish, taking his side 4-2 up just after the hour mark.
The Reds created a few half-chances in the final 20 minutes of the match, but Emery's men had clearly set up to play on the counter and saw the game out to keep them firmly in the race for Champions League football next season while Forest are still only four points above the drop.
Aston Villa will return to league action next weekend when they head to Kenilworth road to face relegation candidates Luton Town while Nottingham Forest will make the trip to Anfield to take on league leaders Liverpool.