McDonald, 31, joined the club for a second spell in February and helped the club retain its SPFL Premiership status by netting five goals in ten matches.
The 26-times capped Aussie international, who was first a Steelman in 2004 before spells with Celtic, Middlesbrough and Millwall, told MFC TV: “I’m delighted it’s all been sorted as there had been a bit of speculation. It’s great to have joined and I can’t wait until the start of the season.
“ I have nothing but good memories from my time at Motherwell and the warmth from this football club and what it gives me, and vice-versa, was a big attraction for me coming back.
“It’s a family orientated club and my family is ever growing, with a new arrival on the way, so a lot of that was taken into consideration, and where we would be happy as a family as well as where I would be happiest playing my football.
“I really enjoyed the end of last season and am hoping for some success here this season.”
Motherwell manager Baraclough added: “We’ve been talking to Scott for most of the summer and we’re obviously delighted he will form part of our squad for at least one more year.
“He carries a threat, that was proven in the last few months of the season, but we also think he can help assist in the development of other strikers at the club too.
“Whilst Lee Erwin finished the 2014/15 season fantastically well, it would be remiss to not acknowledge the role Scott played there and that was very much in our mind when setting our strategy for this summer.
“He’s also the type of player who will demand from himself and others around him and that’s something I see as a huge benefit. The squad in general is really taking shape now albeit we’re still in the market for both a goalkeeper and a centre midfielder, which we hope to tie up shortly.”