The 24-year-old former Royals trainee saw his £4.5 million move collapse on Tuesday.
A medical at Premier League Hull revealed knee damage and that was enough to put off boss Steve Bruce.
However, Royals could now jump in with a tempting bid for the 24-year-old hotshot.
Austin grabbed 28 goals in 40 games for the Clarets last season, but has struggled with injuries in the past.
Royals are keen to sign a striker as Noel Hunt has been released and Jason Roberts will miss the start of the Championship season through injury.
Southampton duo Rickie Lambert and Billy Sharp are possible targets along with Celtic's Gary Hooper.
Royals boss Nigel Adkins confirmed: "I'm sure there may be one or two more additions that will come our way.
"The transfer window is a long way from closing and a lot of clubs now are getting back into business.
"I'm sure there will be more movements in and out at loads of clubs. We've been very active from day one and we're very aware of what we need to do to improve.
"I'm really pleased with the three we've brought in."
Reading have signed Royston Drenthe, Wayne Bridge and Danny Williams this summer.