The Munster and Ireland lock fractured his right forearm during the first Test win over the Wallabies and he has had to reluctantly give up the number 5 jersey, with England's Geoff Parling poised to take over.
O'Connell, ever the competitor, will feed his replacement with as much information and advice as possible as the Lions look to win the Test series - something which they failed to do when the Limerick man was captain in South Africa four years ago.
The 33-year-old has now played in successive Test wins for the Lions - they beat the Springboks in a thrilling third Test in 2009 and hung on for a tense two-point victory in Brisbane last Saturday.
Although he will have no on-field involvement, he would dearly love to see Sam Warburton lead the Lions to a series triumph in Melbourne this weekend with Warburton having lent on O'Connell as a key lieutenant during the tour so far.
Indeed, it is a measure of the high esteem in which O'Connell is held that both the Lions and Australian camps have spoken this week of how big a loss he is to the tourists' cause.
"I don't think Paul will be here in four years' time (for the next Lions tour) and having played such an important role in the first Test he was given the option of staying or going home and he wanted to stay with the squad,” said head coach Warren Gatland.
"It will be fantastic if we can win the series. I know a lot of players that have been around for a while and hadn't had a lot of success in the southern Hemisphere. He's one of those who’s desperate to do it.
"I feel really sorry for him. It's a big loss for him, a big loss for the team. I think he's played some of the best rugby I've seen him play in a long, long time. He's in great shape. The combination of him and Alun Wyn Jones was proving to be really strong.
"Paul's been around for such a long time that he's got the experience and wisdom to be able to have an input. I'm sure he'll be involved in some aspect."
Meanwhile, Michael Hooper, who was Australia's openside flanker in Brisbane last Saturday, saw up close just how big a talisman O'Connell has been for the Lions pack.
"Paul is an intimidating figure when you see him standing across from you in a lineout. He attracts a lot of attention. He'll be a big loss to their camp and it is a shame," said Hooper, who could line out against O'Connell again when Ireland host the Wallabies in November.
"He finished the game with a broken arm so you can see how much he wants to be there. There will be someone who steps in who is just as good. Maybe they won't bring the same emotional or spiritual thing that he'd bring, but skill-wise it will be the same."
The Lions team for the second Test is due to be announced in a few hours' time at 12.15pm Melbourne time/3.15am Irish time.
With Alex Corbisiero losing his battle with a calf injury, his England team-mate Mako Vunipola is set to start at loosehead prop. Jonathan Davies should hold onto the number 12 jersey with Jamie Roberts still recuperating.
Dan Lydiate, who captained the Lions to a final midweek win over the Melbourne Rebels, has been talked up as a possible replacement for Tom Croft at blindside flanker, while Alex Cuthbert's try in the first Test may not be enough to stave off the more experienced Tommy Bowe.
Bowe is back available for the Lions after making a swift recovery from a broken bone in his right hand. Click here to view photos of the Monaghan man's rehabilitation.
There are also suggestions that Mike Phillips, who has been troubled by a knee problem, might lose his scrum half spot to Ben Youngs who scored the Lions' fifth and final try against the Rebels.