World Cup finalists Portugal were 3-0 up at half-time thanks to Hugo Almeida’s double and an own goal from Richard Keogh before James McClean pulled one back early in the second half.
Vieirinha and Fabio Coentrao then scored for Portugal inside the closing 15 minutes as Ireland chased the game, but O’Neill was not too worried about the final outcome.
“I thought we started nervously, and that was something we wanted to try and avoid,” he said. “Two of their goals came from our possession, which we gave away needlessly.
"Those are the things that over the course of the European Championships you have to try and cut out. I thought we came to grips with it - we got the goal back and looked dangerous at times.
"We were still trying to chase it to get back to 3-2. When I finally sit down and analyse it, there should be things I am happy about and obviously things we need to improve."
O'Neill was not too concerned by the margin of defeat, insisting that, had his team gone into their shell at 3-1, it would not have seemed too bad a result.
He said: "I feel it is not disheartening in the sense that it was 3-1 and if we shut up shop, it is 3-1 and it doesn't seem so bad.
"I am not too bothered. I have done this before at club level, trying to chase games and stay as positive as possible, and considering the changes that we made and some of our main players not playing, I don't think this will kill us off.
"It was as tough a game as we expected it to be. But it was also game that I wanted us to participate in because this is what it is about: playing one of the best teams in the world heading to the World Cup.
"Portugal played well throughout the match and it was a stern test for us."