The 42-year-old, who was sacked by Carlisle in rather strange circumstances just a game into the current League One season, has worked as Jackson's number two at Sincil Bank since the start of November, and he was contracted to City until the summer of 2009.
But McDonald left his position this morning to take up a short-term deal with Leeds until the end of the season, and his appointment has finalised an impressive backroom team behind McAllister.
Ex-Republic of Ireland coach Steve Staunton was recruited as assistant manager on Monday, also on an initial deal for the remainder of the campaign.