He watched him in action at Craven Cottage on many occasions when taking a 15-month sabbatical from the game before returning to take charge of Villa a year ago.
But he knows Knight lets himself down when occasionally switching off in the heat of the action - a fault O'Neill wants him to rectify for his and Villa's benefit.
O'Neill said: "Zat spent eight years at Fulham and it was probably a wrench leaving for him but hopefully he can produce for us the performances I know he's capable of doing.
"He's comfortable with the ball at his feet. He won't mind me saying he occasionally goes to sleep. Preferably he will do it after the game from now on!
"But he's got a lot of talent. I've seen a lot of him over the last couple of years and I've seen him play very well and very poorly.
"I watched a lot of Fulham games in my year out of the game. I went to Craven Cottage more than other ground probably in that time.
"I wouldn't have spent the money if I didn't think we had someone of real quality in the making. He's a lad with a lot of potential and natural talent."
O'Neill now has central defensive talent in depth but is predicting Knight will force his way into his plans as he prepares for the clash with Jose Mourinho's side.
He said: "Zat will get his games. He hasn't come here to hang around. He senses competition for places which is what I wanted to add through the team.
"He's very confident in his ability and I think he has more than enough - not only to cope with what happens here, but to cope with whatever is thrown at him.
"Zat hasn't come in to make up the numbers. He's come to improve the team and if he steers clear of serious injury, then I'm sure he'll be an asset to us."