Reo-Coker was skipper of his country's Under-21 side when they reached the semi-finals of the European Championships in Holland last month.
He is no longer eligible to play at that level but O'Neill is confident his £8.5million capture from West Ham can take the next step forward on the international scene.
O'Neill said: "Nigel is no longer eligible to play for the Under-21s so now his driving ambition is to play for the seniors.
"The only way he can achieve that is by playing consistently well for Aston Villa to an extent where the England manager (Steve McClaren) cannot afford to ignore form.
"There's definitely room for Nigel in the squad. Maybe not right at this minute because England possess some of the finest midfielders in Europe without any question.
"People wonder whether Frank Lampard and Steven Gerrard can play together but I don't think it's a problem. It's a formidable midfield especially with Owen Hargreaves back in the fold.
"But I feel that Nigel is capable of breaking into that - and I still feel that about Gareth Barry as well."
O'Neill is continuing his search to bring in other new players - and one on his radar is Tunisian international striker Ziad Jaziri.
The Irishman has made enquiries about the availability of the 29-year-old, who plays for Troyes in France.
Jaziri had a mixed 2006 World Cup for his country, scoring against Saudi Arabia but being sent off against the Ukraine.