Republic of Ireland captain Coleman suffered a double fracture of his leg following a challenge from Wales’ Neil Taylor during the 0-0 draw in Dublin on Friday.
The 28-year-old has successfully undergone surgery and now faces a lengthy recovery period which could keep him sidelined for as long as six months.
And ahead of the friendly with Iceland on Tuesday O’Neill admitted the defending is facing a long road back.
"I think he's just beginning to come to terms with it," he said. "I saw him yesterday and he's still pretty down about it.
"He's not in as much pain, the operation went very well, and it's just a matter of coming to terms with it.
"As Seamus mentioned to me the other day, he just said that it has happened now, he can't do anything about it, and it's what he does now in the next few months that is very, very important."
O’Neill watched Henrik Larsson recover from his own serious injury and backed his man to do the same.
"Before I went to Celtic, about five or six months before that, Henrik Larsson had a very serious injury," he added.
"He recovered magnificently and the injury didn't bother him again from then until the end of his career, so players have recovered.
"Great players have broken their legs and come back, and Seamus, obviously it's very early for him to start considering all those things, but he is positive.
"Naturally, as I mentioned earlier at the start, he's down, as he would be, as the realisation that he is going to be out of action for quite some considerable time has dawned on him. Those type of things don't just take five minutes to get over.
"But he's very strong, he's got a lot of good people around him, his family is very, very strong as well, and he is positive that he will be back and as good as ever."