Goals from Ashley Young and substitute Marlon Harewood pushed Villa closer to Champions League qualification and they are now level on points with their two main rivals for fourth place, Liverpool and Everton.
John Carew and the fit-again Gabriel Agbonlahor were also instrumental in inflicting a club-record eighth successive league defeat on the Royals.
Villa could also afford the luxury of a penalty miss by Gareth Barry and spurned plenty of other chances as Reading were caught time and time again.
Young's 45th-minute opener was the result of a defensive clanger by the awful Kalifa Cisse, who had allowed Agbonlahor to elude him on the right, and the former Watford man was part of a move that began in his own half which saw Harewood wrap up the points in the 83rd minute.
Nicky Shorey pulled one back in stoppage time direct from a free-kick but although that had no bearing on the result it was at least Reading's first goal in six games.
O'Neill said: "We were a threat all day, we looked capable of scoring and there was no question we deserved to win the game.
"At 1-0 as Reading were pressing for an equaliser so anything could have happened but Marlon came up trumps again, as he has done on three out of four occasions when he has come off the bench.
"Young was class. When Gabby rolled the ball across to him he still had to control it and when the goalie comes diving out he still has to put it past him. He took the goal brilliantly.
"Gabby was a handful and although he has done some light training this week that was nothing like a match so to see the game through was particularly pleasing.
"When Marlon came on he went wide right as he is capable of defending and that is the great thing about Agbonlahor and Young - they can drop into a position and if they pick it up from deep they are capable of going 30 or 40 yards with the ball.
"And Carew was immense. Playing like that, he is as good as there is. I have often said he doesn't realise how good he is. He had two decent opportunities early on - he knocked one across the box and blazed one over the bar - but John Carew now is full of self-confidence - as much as I believe he has ever had - and he was absolutely incredible."
Cisse was the man who gave away the penalty, although it was a harsh award by referee Martin Atkinson as there was no intent as Craig Gardner's shot hit him on the arm.
Justice was done when Barry, with four previous spot-kick successes to his name already this season, sliced it well wide.
"I kicked the ground as I was taking it but these things happen," the England man admitted. "I spent a couple of minutes trying to forget about it and I'm just glad it didn't cost us in the end. It's three points and we move on.
"I have missed a couple before and it would be good to get another one as quickly as possible. It went the side it was supposed to but just shanked off. At least it sent the 'keeper the wrong way."
Reading remain within leapfrogging distance of fourth-from-bottom Birmingham but have yet to pick up a single point since Boxing Day.
Boss Steve Coppell admitted he might now have to make wholesale changes for next week's trip to Middlesbrough, especially as the Royals have yet to win away this term.
He said: "I really don't know what we can do. It is not as though I am keeping anything in reserve for such an occasion. I feel as though we have more potential in the squad than is actually being shown on a weekly basis but I just don't know.
"This season has been frustrating for me personally. There is more in this squad but for whatever reason it is not coming out. I really don't know why.
"People talk about confidence and if there was such thing as a confidence injection I would give them one.
"I feel I have been too loyal to some players in the squad and it might just be that there will be four or five changes for the next game. The ones on the outside of the team must be hellishly frustrated as the ones who are playing at the moment just aren't delivering."
PA Sport