McDonald, 41, had a 67-49 record in just more than three seasons as the head coach at Western Kentucky. The Hilltoppers were 25-8 and in the NCAA tournament in his first season, slipped to 21-13 in 2009-10 and were 16-16 last year.
Western Kentucky Director of Athletics Ross Bjork said McDonald was given a chance to "begin positive trends" after last season but "the plan has not worked out."
"We have a 5-11 record and do not rank in the nation's Top 200 in virtually any statistical category," Bjork said in a statement. "This is not what the WKU basketball program should represent."
Ray Harper, who had been an assistant on McDonald's staff, was named interim head coach, the school said.
The Western Kentucky position was the first as a head coach for McDonald, who served as an assistant at Western Kentucky, Georgia and Texas before taking over the Hilltoppers' program in 2008.