According to Alex Diaz and Andy Jehring in The Sun, the 21-year-old was caught on camera "screaming and dancing" at 2:37 a.m. GMT on Saturday, with Arsenal's FA Cup clash set to kick off just over 36 hours later.
The report added others at the Soho house party "smoked cannabis and inhaled laughing gas" and there were noise complaints from the neighbours, while a source reportedly said: "Maybe Iwobi's partying had something to do with [the defeat]. He shouldn't have been up that late before a big game."
BBC News' Helena Lee provided The Sun's Tuesday front-page splash on the story:
"It was not the night before the game. It was 48 hours. But it's not acceptable, I will speak to him about it. When you read what is reported it's like he has taken drugs, he is not involved in that at all. He was out at a birthday party. I will decide what happens."
Iwobi started in the No. 10 role at the City Ground, where Championship side Forest knocked out Arsenal in a thrilling FA Cup tie.
It was the Gunners' first third-round exit from the world's oldest football competition in Wenger's 22 years in charge at the club.
A weakened side made up mostly of squad players produced an abject display, with Forest fully deserving their victory. Iwobi was one of many poor performers, and his preparation is unlikely to impress after the emergence of the video.
The Nigeria international broke into the Arsenal first team during the 2015-16 season but has since been unable to nail down a regular starting spot.
He has started just nine of the north London outfit's 22 Premier League fixtures so far in 2017-18 but, along with the experienced likes of Theo Walcott and Danny Welbeck, would still have been expected to put in a decent display.
But, per The Independent's Jack Pitt-Brooke, the FA Cup holders were eventually dumped out of the competition with a whimper:
And Iwobi is now likely to face fierce criticism and questions about his dedication.