McDonald, 33, said at a media conference on Thursday that he didn’t argue his case to play on, although he felt his body was capable of standing up to another season of AFL football.
“The decision was made, so I don’t think it was worth arguing the toss,” he said.
McDonald will play out the season with the Demons, with Sunday's clash with Port Adelaide to be his 250th career game.
He made the retirement announcement alongside club president Jim Stynes and coach Dean Bailey.
“My time’s come to an end at the Melbourne Football Club and it sits comfortably with me now,” McDonald said.
“I understand the club’s decision. I look back at my own career and I probably got my opportunity to get off the rookie list on to the senior list through a senior player in Paul Prymke retiring.
“It has been a fantastic opportunity for me. When I first started out I didn’t think I’d end up captaining the club and to be able to do that has been an honour for me. It has been a fantastic life experience for me to spend so many years here at the Melbourne Football Club.”
McDonald acknowledged that the decision to retire was a tough one.
“You don’t know until you actually go through it. It is something you love doing,” he said.
“It’s that realisation of letting go, and I probably thought I could have got another year out, but at the end of the day football clubs are all about winning premierships.
“Hopefully they might win one next year, but they are probably not quite ready for that.”
McDonald said he had watched with interest as other players announced their retirements this season.
“Some of them are pretty definite about their retirement, but physically this year I was going pretty well until I hurt my hamstring, so that probably set me back a bit,” he said.
“Mentally I felt pretty good; I felt comfortable in the leadership role as captain.”
McDonald was formally appointed captain in early 2009, after sharing the duties with Cameron Bruce during David Neitz's injury-shortened 2008 campaign.
A graduate of the rookie list, McDonald made his AFL debut in 1997.
The midfielder enjoyed his finest season in 2006, winning the club's best and fairest award and earning All-Australian honours. He was named best and fairest again in 2007.
McDonald signed a one-year contract extension at the end of 2009, and has been a strong contributor to the side this season, despite missing six games with a hamstring injury.
