O'Neill, 59, a former Nottingham Forest player, built his managerial reputation at Wycombe Wanderers before successful spells at Leicester City and Celtic.
He joined Villa in 2006 and led them to three straight sixth-placed finishes in the Premier League and the Carling Cup final before resigning before the start of the 2010-11 season.
He is understood to have met Sunderland's owner and chairman Ellis Short on Thursday evening in London to negotiate a deal.
O'Neill first game on the sideline will come after this weekend's encounter away at Wolves. Eric Black, Steve Bruce's old assistant will be leading the team out this Sunday.
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