The 25-year-old, who was the Irishman's top target this summer, has signed a four-year contract at the Stadium of Light.
He was joined as his new club last night by the Manchester City winger Adam Johnson, who followed Fletcher to Wearside in a £10m deal.
The completion of Fletcher's move before a midday deadline means he is available to make his debut at home to Reading this afternoon. He is now the most expensive Scottish footballer ever in terms of total transfer fees.
O'Neill had pinpointed Fletcher as the man he wanted to bolster his attack after the departures of Nicklas Bendtner and Asamoah Gyan, with Louis Saha already signed up earlier this month. "I'm delighted," O'Neill said. "I've just come from the training ground and I'm delighted it's all gone through.
"I think Steven will be terrific for us. He's underrated, but not by me. I think he's capable of scoring goals and linking play, which is very important to us, and I think now at 25 years of age he's got room to improve and really get better.
"Wolves lost their Premier League status last season but I think he's very good and I think he's improving. He hasn't played that much. He had a setback a few weeks ago, so in terms of fitness he didn't train with us today but I'll assess him anyway. I'm delighted to have him for the next few seasons."
On Johnson, O'Neill said: "Adding quality players to has been our main aim this summer and Adam certainly fits that bill. He has terrific ability and great delivery and I'm sure he is a player who will excite our fans. I couldn't be more delighted to have him at the club."
The 25-year-old Johnson is a product of Middlesbrough's academy. He has 12 full England caps but failed to make the squad for Euro 2012 and will hope his move might help to revive his international career.
O'Neill expects a tough challenge against newly-promoted Reading in Sunderland's first home game of the season. O'Neill's side took a well-earned point from a hard-fought draw with Arsenal at the Emirates in their opening game. Reading kicked off with a draw against Stoke City before losing 4-2 to Chelsea at Stamford Bridge on Wednesday night, after being ahead.
"It's a very important game for us," O'Neill said. "This is the most difficult time of the season [to play promoted sides]. That exuberance, Reading have in abundance and they can also play a bit. They will consider themselves unlucky not to have got something against the European champions away from home. I know from experience these games are not easy. We're certainly not good enough to treat anyone lightly but I'm not decrying us in any shape or form, it just means that we've got to be at it."
O'Neill also refused to play down the point won at Arsenal with a defensive display, but admitted his team need to be on the front foot today. He said: "It was a proper plus last week and I don't think we can disregard that. The point at Arsenal was well-earned.
"We're at home now. We want to show our attacking options and we want to score some goals this season. That's one of our aims, if not priority. But I thought Reading played very well indeed on Wednesday night. I expect them to be fearless, with a lot of vitality to their game."