McDonald, 61, of Cincinnati, will replace Acting VA Secretary Sloan Gibson, who took over in May after Eric Shinseki resigned.
McDonald has pledged to transform the VA and promised that "systematic failures" must be addressed. He said improving patient access to health care is a top priority, along with restoring transparency, accountability and integrity to the VA.
The 97-0 vote to confirm McDonald comes as Congress appears poised to approve a $17 billion compromise bill to overhaul the VA.
Senate Majority Leader Harry Reid, D-Nev., said it was important that Congress act on the reform bill as quickly as possible in order "to give Mr. McDonald and his team the resources they need to ensure American veterans are getting the care we've promised them."
Senate Republican leader Mitch McConnell said McDonald "has a tough job ahead of him," but said that if McDonald "is willing to work in a collaborative and open manner with Congress, he will find a constructive partner on this side of the aisle."
House and Senate negotiators have approved the VA bill, which is intended to help veterans avoid long waits for health care, hire more doctors and nurses to treat them, and make it easier to fire executives at VA. The vote by the 28-member conference committee late Monday sends the bill to the full House and Senate, where approval is expected later this week.
The measure includes $10 billion in emergency spending to help veterans who can't get prompt appointments with VA doctors to obtain outside care; $5 billion to hire doctors, nurses and other medical staff; and about $1.5 billion to lease 27 new clinics across the country.
Florida Rep. Jeff Miller, who chairs the House Veterans Affairs Committee, and Sen. Bernie Sanders, I-Vt., who chairs the Senate panel, say the bill will require about $12 billion in new spending after accounting for about $5 billion in unspecified spending cuts from the VA's budget.
Despite the steep cost, Miller said he is confident he can sell the bill to fellow Republicans, including tea party members.
"Taking care of our veterans is not an inexpensive proposition, and our members understand that," Miller said Monday. "The VA has caused this problem and one of the ways that we can help solve it is to give veterans a choice, a choice to stay in the system or a choice to go out of the system" to get government-paid health care from a private doctor.
Pressed on the point by reporters, Miller said there will be "an educational process that will have to take place" before the House votes on the compromise plan later this week. "Obviously some of our members will need a little more educating than others."
Rep. Tim Huelskamp., R-Kan., a tea party favorite and a member of the House veterans panel, said "throwing money at the VA won't solve their problem," adding that "a fundamental change in culture and real leadership from the president on down is the only way to provide the quality, timely care our veterans deserve."
Sanders, for his part, said funding for veterans should be considered as a cost of war, paid for through emergency spending.
"Planes and tanks and guns are a cost of war. So is taking care of the men and women who fight our battles," he said.
Miller and Sanders both predicted passage of the bill by the end of the week, when Congress is set to leave town for a five-week recess.
If approved by Congress and signed by President Barack Obama, the veterans' bill would be one of the few significant bills signed into law this year.
White House press secretary Josh Earnest said Obama welcomes the bipartisan deal as "much-needed reforms that need to be implemented."
The White House is especially pleased that the bill includes emergency spending "to provide VA the additional resources necessary to deliver timely, high-quality care to veterans through a strengthened VA system," Earnest said.
The VA has been rocked by reports of patients dying while awaiting treatment and mounting evidence that workers falsified or omitted appointment schedules to mask frequent, long delays. The resulting election-year firestorm forced VA Secretary Eric Shinseki to resign in late May.
The compromise measure would require the VA to pay private doctors to treat qualifying veterans who can't get prompt appointments at the VA's nearly 1,000 hospitals and outpatient clinics, or those who live at least 40 miles from one of them. Only veterans who are enrolled in VA care as of Aug. 1 or live at least 40 miles away would be eligible to get outside care.
The proposed restrictions are important in controlling costs for the program. Congressional budget analysts had projected that tens of thousands of veterans who currently are not treated by the VA would likely seek VA care if they could see a private doctor paid for by the government.