Agbonlahor struck six minutes from time after Ashley Young's free kick was knocked into his path by John Carew, and O'Neill expressed his relief after his side recorded their third consecutive win.
O'Neill said: 'It was a hard fought match and I am relieved to come out of the game with three points.
'I knew we had players capable of scoring, but the game looked to be heading for stalemate.
'By sending John Carew on, we went for the win as I felt we was not creating enough pressure, and it paid off.
'We have had three great wins after a poor start to the season, but now we want to put that behind us, and learn from the mistakes we made last year.'
O'Neill thrust three debutants into the derby day limelight by handing starts to Richard Dunne, James Collins and Stephen Warnock, while his Birmingham counterpart Alex McLeish gave a start to deadline day signing Teemu Tainio.
The visitors had the opening chance of the game in the seventh minute when Agbonlahor held off Tainio and squared it to James Milner, but he could only hook his 12 yard shot wide.
The pair combined again 15 minutes later, but Milner mis-hit his shot harmlessly wide after another good cut-back from Agbonlahor.
It took Birmingham until the half hour mark to threaten the Villa goal. Lee Bowyer accelerated forward from the halfway line but saw his 20 yard shot parried away by Brad Friedel.
From the resulting corner, the ball fell to Keith Fahey on the edge of the box, and he saw his long range shot drift a yard wide of the post.
Just before half time, Villa threatened again, but Agbonlahor could only place his header wide when well placed.
Despite the physical nature of the contest, the first yellow card did not arrive until the 51st minute, when Villa’s Steve Sidwell was booked for a blatant tug to halt Sebastien Larsson’s surging run.
Substitute Lee Carsley, who replaced James McFadden at half time, continued Birmingham’s momentum two minutes later when his 25 yard curling effort was well smothered by Friedel.
The visitors attack in the second half was non-existent until Young tried his luck from 20 yards, but his shot sailed high over the bar.
However, they built on that effort and could have taken the lead two minutes later. Warnock played in Milner down the left, whose pinpoint cross found Sidwell at the back post, but his close range header was straight at Birmingham keeper Joe Hart.
They came close again with ten minutes to go, when Milner drilled a low shot from long range, but his effort was deflected just around the post.
Birmingham huffed and puffed but they could not break the Villa wall down, as the local lad had the last laugh that his industrious display deserved.
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