McDonald has been a part of the IPL in the past having played for the Delhi Daredevils in the 2009 edition before being signed up by the Royal Challengers Bangalore (RCB) in 2012-2013. He was also the bowling coach of RCB.
Reacting to his appointment, McDonald said: "I'm delighted to join the Royals family. It's a great honour to take on this responsibility.
"The Rajasthan Royals is a new, exciting challenge for me, and I can't wait to get started working with our world class players and coaches in one of the biggest sporting leagues in the world." The former Australian all-rounder has coached Leicestershire, Victoria and the Melbourne Renegades.
The 38-year-old, who played four Tests for Australia, had guided Victoria to the title win in Sheffield Shield in his first year as senior coach. He then moved the Renegades from seventh position to winning the Big Bash this year.
Ranjit Barthakur, Executive Chairman, Rajasthan Royals said: "We are delighted to appoint Andrew as our head coach. He shares our belief of discovering potential and championing dreams and is aligned with our vision to continue to drive innovation in the IPL.
"Andrew will be preparing for the season by sharing experiences and best practices with exceptional coaches in other sports and will be visiting India in the near future to meet the Royals team, both on and off the field." Rajasthan Royals, the inaugural IPL champions, had finished at the seventh spot in 2019 edition after registering five wins and ending with 11 points at the end of the league stage.