That is so hard, and the decision of whether or not to involve DCF is an especially tough one. I second another person's advice to connect with an experienced attorney before involving DCF. Also, if there are any reputable counseling/therapy places in your area, who know about kinship/foster/adoption and know about the state in your area, that would be well worth connecting with as well. Such places are rare but do exist in some areas (there's a great one near us, thankfully!).
For us, the state had been involved but was quick to extricate itself once a suitable home was found for the children (my niece and nephew, by birth). They hadn't been removed from care, DCF was just involved and threatening removal. We then spent a year with the kids, during which their legal custodial parent (mom) asked us to parent them for another year. With the guidance of our therapists, we told her yes with the agreement that we'd regroup in a year and make a permanent placement decision. I think it was truly our skilled counselors who, at that meeting a year later, allowed their mom to make the decision to place for adoption. It was so difficult for her, even though she knew it was the only thing that made sense. Their dad took another 6+ months, and from when the decision was first made it was almost another year before the adoption was actually finalized.
IF your sister truly doesn't care and conveys that to DCF, things can be a lot quicker. On the other hand, in our state there's a legal presumption that always sides with the birth parent unless that person is unfit to parent. We're not talking "best available parent," but "so bad that the kid would be in immediate danger." For us, I'm very thankful that we didn't have DCF involvement and were able to work and work and work on tightening the relationships with both birth parents, eventually resulting in the adoption. Of course, had the outcome be different, my heart would be in a million pieces and I'd probably be strongly questioning every one of our choices.
So, like someone else said, document document document just in case you ever need it. Seek some professional advice from the best available source(s) in your area. Pray a lot if that's your thing. And then make the best decision you can. That's day-by-day decisions, even in the most heart-wrenching of moments. Oh and one tip we did learn from our therapists was to always only talk about the needs of the children and not our own. At one point, my husband and I were really needing some permanency. We had to really set that need aside and look at the kids' needs. Another reason that having the therapists was incredibly helpful.
Bless you for caring so much for your little nephew. My mom used to always tell me that no matter how it all ended up, our love could only be helpful to them in the long run and we had to keep believing that no matter what, love is never wasted.