The 28-year-old defender was on the cusp of signing for struggling Portsmouth on the last day of the transfer window, but negotiations fell through at the last minute.
With fellow left-back Stephen Warnock joining Villa for £8million, Shorey's position at the club looked in doubt, but O'Neill insists he can still fight for his place.
"Does he have a part to play?" he told the Birmingham Mail. "Of course. I think Nicky and his agent kind of pre-empted things a little bit by thinking he was not going to play.
"I had certainly not been pushing him out but something came up and they wanted to explore that. I gave them that opportunity but it didn't come off.
"Nicky wants to come back here and really fight for a place in the side.
"We have Warnock and then Freddie to come back so there's options, which will be very important between now and January."
SigningsO'Neill spent £40million on new players during the transfer window, bolstering his squad with the signings of Stewart Downing, Stephen Warnock, Fabien Delph, Richard Dunne, James Collins and Habib Beye.
And the Villa boss insists his squad is in a stronger position now than it was at the start of the last campaign, despite the loss of key players Gareth Barry and Martin Laursen.
"Am I happy with my overall business?" he said. "I couldn't be more pleased. I think we have strengthened the side.
"I have got that extra defensive strength I was looking for plus Fabien Delph will be a really fine player for us - and Stewart Downing already is a fine player.
"I think Richard Dunne and James Collins will help us immensely. We looked a bit thin at the back and we used the fewest players in the league last year.
"We've lost two really fine players in Gareth Barry and Martin Laursen, they will be hard to replace but in time we will get stronger."