The winger is likely to be available in the January window as he forces a move away from Betis.
Other candidates interested in the teenager include Premier League rivals Brentford, Bundesliga clubs Hoffenheim and RB Leipzig, both Getafe and Villarreal in Spain, plus FC Porto of Portugal which means Forest will have some tough competition to get him to put pen to paper.
Forest already have a set of versatile wingers in Anthony Elanga and Callum Hudson-Odoi who have helped the club remain unbeaten so far this season with some excellent performances.
Hudson-Odoi found life at Chelsea hard as much like Diao, with the pathway to the first team was blocked. Forest could repeat this transfer and bring in a top talent who has been neglected by his club for a cut price that may work out just as well as the Hudson-Odoi deal.