The Scottish First Division club stalled on the deal and now Freedman admits it is 'dead in the water'.
The youngster enjoyed a productive season at Dens Park, bagging eight goals as the club finished in mid-table.
Freedman said: "We made an offer to the club and to the player and we left it with them. Nothing's come back from them yet, so it looks like that one is dead in the water."
The Palace boss was keen to offer Forsyth, who was linked with a move to League Two new boys Crawley Town last season, a chance with the Championship club.
He added: "It's a shame, he's someone I wanted to bring in, but with finances as they are it's difficult, I think we're going to have to get one or two players out before we get any in."