McDonald started his first season under head coach Chip Kelly as the starting tight end for the first time in his career, as Vernon Davis was traded midway through the previous season. In the 49ers' season-opening victory over the Los Angeles Rams, McDonald caught two passes, one for 14 yards and an 8 yard touchdown from Blaine Gabbert. The next game, he caught a career-long 75-yard touchdown from Gabbert, during a 46–27 loss to the Carolina Panthers. On November 6, 2016, McDonald caught three passes for 85 yards and scored a 65-yard touchdown during a 41–23 loss to the New Orleans Saints. In a Week 12 matchup against the Miami Dolphins, he made four receptions for 60 yards during the 31–24 loss.
On December 9, 2016, the 49ers signed McDonald to a five-year, $35 million extension that included $16 million guaranteed and a signing bonus of $7 million. He was placed on injured reserve on December 12, 2016 after suffering a shoulder injury in Week 14 against the New York Jets.