McFadden is available on a free transfer after he was released by Everton last season and O'Neill is hopeful of securing the 29-year-old's signature until the end of the season.
O'Neill said: "I'm going to speak to his agent who is in America at the moment, and hope that we can come up with something, but it's encouraging.
"The issue for us is whether we can keep James McClean and Adam Johnson fit all season, because apart from them, we have no real width in the squad.
"If he gets properly fit, he can help us and then he will have to try and get into the team. I think it will be good for him. I would look to do it until the end of the season."
McFadden has only made 13 appearances in the past two seasons because of injury.