Boss Joe Royle told the club site: "I have spoken to Dean and told him we won't be offering him a new contract.
"We have a number of young strikers at the club now who are breaking through, the likes of Danny Haynes and Billy Clarke, with Darryl Knights in the wings as well."
McDonald was the subject of a transfer bid from Hartlepool in January, after a successful loan spell and will now have to look to another club for a place next season.