The former Bolton midfielder is due to step into the role vacated by Spaniard Julian Lopetegui, who left Molineux after a “difference of opinion” on the club’s direction.
O’Neil guided Bournemouth to safety last season in his first managerial post but was sacked in June and replaced by Andoni Iraola, who had enjoyed success in La Liga with Rayo Vallecano.
The 40-year-old spent the final year of his playing career with the Whites, playing under Phil Parkinson at a particularly stormy time in the club’s history.
He was also considered by the club’s administrators as a potential stop-gap manager after Parkinson tendered his resignation in August 2019.
O’Neil had agreed to stay on in a player-coach capacity after Football Ventures took over in September of that year but the new management team of Keith Hill and David Flitcroft went in a different direction.
O’Neil said at the time: “It was complicated. There were discussions and I had agreed to stay.
“I kept myself fit and told them I’d be back as soon as it was possible to re-sign. But a few weeks later the management and coaching staff were changed and I didn’t hear anything from then on.
“I was disappointed I didn’t get a call from somebody.
“That would have been nice being a senior pro and helping out as I did off the pitch last year.
“I was on the phone all summer with the PFA trying to sort out the lads who needed money. On holiday I was on the phone all day.
“So, I did all of that and, of course, I understand that they changed their mind and decided to go in another direction – I respect that – but to win the player of the year and not to get a call saying ‘Gary, we’ve decided not to offer you a new deal. We wish you all the best.’ “That would have been nice.”
Wolves have openly admitted they have to spend carefully this summer to meet with the Premier League’s Financial Fair Play regulations and have already sold players like Raul Jiminez and Ruben Neves.