Davies, who arrived on a season-long loan from Premier League outfit Swansea City in July, has had his stay in Somerset terminated prematurely following an agreement between all three parties.
Making five appearances, the 21-year-old scored his first professional goal in the 2-0 Checkatrade Trophy win over AFC Wimbledon in December, helping Town reach the third round.
Also departing, Nelson returns to Millwall following the expiry of his loan deal.
Donning Green & White on 14 occasions during his spell in Somerset having arrived late in August, the 22-year-old featured in three victories for the Glovers before returning to South East London.
All at Yeovil Town Football Club would like to thank the duo for their efforts during their time at Huish Park and wish them all the best in the future.