They decided not to spend for a high-profile coach after dismissing
Lenny Wilkens with a year left on his contract.
O'Neill had been an assistant under Rick Carlisle at Detroit the last two seasons. He lost his job when Carlisle was fired in late May.
"I want to thank Jeff Van Gundy for giving me a chance to coach in this league," O'Neill said at a news conference. "And Rick Carlisle gave me an opportunity to learn a lot in this league. I owe a lot to both of them."
O'Neill, 46, is a graduate of McGill University in Montreal. He has never been a head coach in the pros, but was a bench boss in college at Northwestern, Marquette and Tennessee.
"I realize you can't compare coaching in college with coaching in the NBA," O'Neill said. "This is certainly a lot more difficult."