Centre-back Hobbs was set to join Championship promotion-hopefuls Forest on a permanent deal after impressing during his time at the City Ground, where he was due to remain for the rest of the season.
However, Hull manager Steve Bruce has opted to bring the 25-year-old back to the KC Stadium after Chester was ruled out for six weeks with a hamstring injury.
Hobbs has made 25 Championship appearances for Billy Davies' side this season and they revealed earlier this month they had agreed a fee for the former Liverpool man.
That move appears to be off though, and the player reported for training with the Premier League club on Friday.
Hobbs will not feature in Hull's FA Cup fourth round tie at Southend United on Saturday as he played in Forest's 5-0 thrashing of West Ham in the third round, meaning he is cup-tied.
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