Yates has spent the first half of this season on loan at city neighbours Notts County and the all-action midfielder has impressed at Meadow Lane.
The 20-year-old started 29 games in all competitions for Notts County, scoring six goals in the process, and his performances brought him to the attention of other clubs.
The midfielder was due to spend the season at Meadow Lane, but Forest recalled him from his loan spell earlier this week amid interest from other clubs.
Scunthorpe have moved quickly to secure a deal for Yates and he will spend the rest of the season on loan at Glanford Park.
Iron boss Graham Alexander is keen to add to his squad during this month's transfer window as he looks to maintain their push for promotion, and he sees Yates as a key addition to his plans.
Before going out on loan again, Yates is to sign a new two-year deal at Forest to secure his long-term future
Yates, who has come through the ranks at Forest, was due to be out of contract this summer, but the club have moved to agree fresh terms with the midfielder.