McDonald graduated from the film program at Ryerson University. His first movie was The Plunge Murderer, followed by a feature-length zombie flick, Our Glorious Dead, made with his grandfather's super-8 camera and shot on location at his Rexdale, Ontario high school, North Albion Collegiate. The film premiered in the school cafeteria and made $100.
His more successful feature films have included Let Me See(...), Knock Knock, Roadkill (1989), Highway 61 (1991), Dance Me Outside (1994), Hard Core Logo (1996) and Claire’s Hat (2001). Roadkill won most Outstanding Canadian Film at the Toronto International Film Festival and Hard Core Logo has been frequently ranked amongst the greatest movies ever to come out of Canada.
He completed shooting The Tracey Fragments (2006) in Toronto, which premiered at the Berlin International Film Festival. While shooting the scenes took him only two weeks, he spent nine months in post-production.
He was formerly romantically linked with fellow Canadian director Valerie Buhagiar. (McDonald, on the 15th Anniversary DVD commentary of Roadkill, even said he had written the part of Ramona exclusively for Buhagiar, with the intention of making her his girlfriend.)
He currently resides in Toronto with his partner and film-maker Dany Chiasson and young daughter, Charlie Yoko.