McDonald, 40, who has been interim head coach since February, joined Australia’s coaching team in 2019 after leading Victoria and the Melbourne Renegades to all three domestic competition titles during the 2018-19 season.
CA made the official announcement on Wednesday and said McDonald “brings a wealth of coaching experience to the position having also held head coaching roles in the Indian Premier League and in English county cricket”.
The 40-year-old has also previously held the role of senior assistant coach alongside former head coach Justin Langer.
The latter’s shock departure in early February sparked harsh criticism from a host of former cricketers, including the late Shane Warne.
Ricky Ponting, Adam Gilchrist and Matthew Hayden were others to take issue with CA’s treatment of Langer when the team had just won the World Cup and the Ashes.
The outrage had prompted captain Pat Cummins to clarify that there was never any issue with the Langer’s “intensity” but the side needed a “calmer” and “more collaborative” approach.
McDonald’s appointment as the new head coach comes after last week’s historic tour of Pakistan, where he coached the Test side to a series victory, lost the one-day series 2-1 and won the only T20 International.
“The journey so far has been particularly pleasing, and I am honoured to be given this incredible opportunity for what is an exciting period ahead,” McDonald said.
“The success of the World Cup, the Ashes Series and now Pakistan has been testament to the hard work and leadership of Justin, Pat and Aaron along with the players and the support staff.
“My plan is to build on the growth, depth and experience of the squad while working collectively with the group and across the game. There are many challenges in the short-term which I know excites the leadership group, the players and the staff. I’d also like to thank my family for their support.”
CA chief executive Nick Hockley said: “We interviewed several excellent candidates for this role, which is one of the most important in Australian sport.
“Andrew has already shown he is an outstanding head coach and the vision he outlined for the role during the appointment process was both impressive and exciting, making him our clear choice.
“We are proud of the way the team played and the respect shown throughout the tour of Pakistan under the leadership of Andrew, Pat and Aaron and really pleased Andrew is taking on the role permanently.”
Executive general manager Ben Oliver said: “Andrew has done an outstanding job as interim head coach and has had a positive impact on the squad.
“I am looking forward to supporting Andrew and the team as we plan for an exciting period, which includes tours to Sri Lanka and India, a T20 World Cup and the home summer before an away Ashes series.
“Andrew has been appointed as head coach in all formats, although some white ball series may be led by an assistant given the significant workload ahead and the opportunity to continue to develop our coaches and players.”