The former X Factor judge and music manager says he and the award-winning actor — who plays the Penguin in this year's The Batman — still laugh about the time he had to let him down after an audition for the boyband.
He told Kate Thornton on White Wine Question Time he hated calling people to let them down after an audition, in response to a question about the most difficult calls he had ever had to make or receive.
Remembering Farrell's audition for Boyzone, who Walsh formed through open auditions in 1993, he said: "Colin said to me: 'Oh, man, it's fine, I'm going to be an actor.'
"I said: 'Acting Colin? You're wasting your time, it's too hard.' And we still laugh about that today. Colin is a brilliant guy.
WATCH: Louis Walsh on Colin Farrell's audition for Boyzone
"He's everything I like about Ireland. He's funny, he's brilliant, he's good at his job. But he doesn't take it serious."
Boyzone went on to have six UK number ones, and Farrell has gone on to star in films such as In Bruges, Phonebooth and Fantastic Beasts and Where to Find Them.
Walsh remembered him at the audition, saying: "He had a bandana, he had a whole look going on, all the girls liked him.
"And he sang a song for me, but he wasn't great, he was okay. But I went with Ronan [Keating] and Stephen [Gately] in the end."
He said it was still a job he hated doing, because he knew that people were waiting for the call and he knew what it meant to them.
"I hate doing that," he said. "I had to do that recently with somebody and I didn't sleep the night before. Honestly, it got to me."
The pair also remembered hearing the news about Stephen Gately's death in 2009 of an undiagnosed heart condition.
Thornton said his death, at the age of 33, 'knocked the stuffing out of all of you' and that she remembered Walsh being 'hugely and quite rightly affected'.
Walsh replied: "He was such a good kid, he really was. I know everybody says that about people when they die.
"But Stephen was so different and so nice. And you know what he was Kate? He was grateful. He was incredibly grateful that he got a chance in life. And he was nice to everybody.
"He should still be around, I'd still be working with him. He was absolutely great. I loved him."
Saying his death 'shouldn't have happened' Walsh said he would also remember getting the news on a Saturday night but still going in to film the next episode of X Factor after hearing the news.
"I was in shock. I didn't realise what had happened."
WATCH: Louis Walsh on X Factor fun, 90s pop music and working with Simon Cowell