O'Neill saw his side suffer their first competitive loss at home under his reign to a dominant Serbian outfit, who took all three points at the Aviva Stadium thanks to Aleksandar Kolarov's impressive second-half strike.
Ireland have now fallen to third in Group D, one point behind Wales who snuck past Moldova 2-0.
The Irish host Moldova next month before travelling to Wales for what looks set to be a decider for a potential play-off berth, with Serbia all-but guaranteed top spot.
O'Neill said: "We are not beaten - far from it. We have the last two games now that we must win and if we can beat Moldova then it sets it up for the final game, where we'll have to go to Wales and win.
"Everybody's down, but it's still in our hands and that's the most important thing. We can get to the play-offs, we can still make it."
Ireland started the game brightly but struggled to contain a powerful Serbian side once they got into their stride, with Manchester United's Nemanja Matic once again proving an impressive force in midfield.
O'Neill, however, was encouraged by his side's display and was convinced they would take something from the game.
He added: "I thought we played very, very well. We've come in [at half-time] and thought we could win the second half. They got a little break just after half-time, but I thought: 'we can win this match'.
"We threw caution to the wind at the end of the match to try and get something out of it, but it eventually eluded us."
Aleksandar Kolarov pic.twitter.com/28uhHsi2D1— European Qualifiers (@EuroQualifiers) September 5, 2017
Serbia played the final 20 minutes with ten men after the dismissal of Nikola Maksimovic, but held firm to withstand the late Irish pressure.
He said: "Of course we are very close to achieving the main goal, but there a couple of matches left. This is very important for us because we didn't progress to the last three competitions.
"This was one of the most difficult games in my career as a coach. It was also one of the most important games because we knew this would be the decisive game to go to the World Cup.
"We know it is not all over, there are two games left to play. We know we just need one point but we will fight hard to achieve it, my boys and me."