Earlier in the close season, Town activated a one-year extension in the contract of the 26-year-old, whose existing contract was due to run out at the end of this month.
The Welwyn born player performed outstandingly in the club's run to the Championship play-off final in May and proved himself to be one of the leading and most consistent second-tier left-backs during 2021-22.
The former Norwich City player, one of four core group leaders at the Terriers, has been in discussions with the club about a long-term contract since last autumn, but so far they have failed to reach a positive conclusion with the deal likely to be the most important one of his career.
Toffolo's form and contractual situation has put Forest on alert, with the East Midlanders toying with the prospect of tabling a bid, with the club in the market for a full-back on the left following Max Lowe's return to Sheffield United.
Speaking about the talks getting under way with Town last year, Toffolo said: "It is something I am very proud of and I am glad the club are doing it and it is an important step for myself and the club moving forward.
"When I signed here 18 months ago, it was a club where I thought: 'right, this could be home' and the people in Yorkshire have welcomed me with open arms and the kids are enjoying school and that is the most important thing for me, the family life as well."
So far this summer, the club have agreed long-term deals with keeper Lee Nicholls and winger Sorba Thomas, with resolving the future of Toffolo beyond the new season being an understandable objective for the Terriers hierarchy.