First-half goals by James McClean and Steven Fletcher and a late strike by Stephane Sessegnon secured the points as the experienced O'Neill celebrated a year in charge of the club.
Sunderland have jumped to 15th with 16 points from 16 games while Reading are left languishing second from bottom on nine points and remain six points from the safety zone.
"It was important for us to get the first goal. To get it so early on probably settles us down and gets the crowd with us," a delighted O'Neill told Sky Sports.
"We had to do something to raise spirits. That goal was very important. The second goal gives us that extra boost."
Reading manager Brian McDermott added: "It was a tough night for us. We have got numerous problems injury wise. Giving away a goal in the first three minutes doesn't help.
"We've given away a couple of goals and you can't do that in this division. We've got to dig in. We did it last season."
Sunderland had won only twice in 23 league matches going into the match - rearranged from August due to a waterlogged pitch - while Reading had suffered four straight defeats.
Sunderland got off to the perfect start with a goal after three minutes with McClean firing home on the turn after Reading keeper Adam Federici had punched a corner to the edge of the area.
Fletcher added a second with a delightful back heel after fullback Danny Rose crossed low for the Scotland striker who had missed the last two matches with an ankle injury.
"[Fletcher] hasn't done any training [since being injured], declared himself fit this morning and we're delighted with his goal," said O'Neill. "He has done exceptionally well."
Sessegnon wrapped up the victory in added time when he rounded Federici and tapped the ball into the net after expertly controlling a long ball and outmuscling Adrian Mariappa.
Sunderland's win means Wigan Athletic, who have 15 points, have slipped into the relegation zone while Queens Park Rangers, without a league win this season, are bottom with seven points.
Get the best features, fun and footballing frolics straight to your inbox every week.
Thank you for signing up to Four Four Two. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.