I've a 1994 940 wagon I bought new. At about 176,000 miles the overdrive lockout light began coming on (the transmission had been serviced regularly by the dealer from whom I purchased the car, maybe). I had my local mechanic (not Volvo) pressure clean the transmission, he said it was the dirtiest he had ever seen, At the mechanic's suggestion, I drove the car for another 2000 miles and had him service it again. No problems since then. For owners having this problem, I'd suggest they have a reputable shop pressure clean the transmission. The cost is approximately $100.

 

You could also have the begining of an overdrive relay going bad.When the relay goes bad sometimes it will kick out of overdrive while you are driving.Then it might take a couple of times of hitting the button on the shifter to get the light to go off.

 

Tech,
You rock this site and thanks a ton for all your knowledge. I have been battling with a evaporator on a 95 850 and now my mother in law a single mom with a little less than a penny needs my help with her 94 940. Her Overdrive is kicking in and out and I have told her to have it looked at and as people do they don't do any preventive maintenance and wait until something is complety not working to take it anywhere. This overdrive relay you say is located under the glove compartment? It now just stays in regular Drive and revs up to 4k rpm on the Interstate. Is this you think a relay or solenoid problem?