O'Halloran's progress at Villa Park was hampered by a cruciate knee ligament injury but the Irishman, 22, passed a medical with Coventry on Monday and has now agreed terms and should be unveiled on Thursday.
Aidy Boothroyd said "Stephen is a young attacking full-back. He is quick and strong and a good defender with a lot of potential."
Boothroyd, meanwhile has distanced himself from a move for shamed striker Marlon King.
King, currently serving an 18-month prison sentence for assaulting a woman, made his name in Boothroyd's Watford team before moving to Wigan in a £3million move in 2008.
He will be available on a free transfer when he is expected to be released this summer, the Latics having cancelled his contract when he was jailed.
Boothroyd told the Coventry Telegraph: "Marlon King is a player that lost his way and then came to me at Watford and got himself going again and became a fantastic asset to Watford.
"He went on to bigger and better things at Wigan and lost his way again."