The Scottish goalkeeper started his career at Hearts making 116 appearances for the Edinburgh side, either side of loan spells with Queen of the South.
MacDonald signed for Falkirk in 2014 after being released by Hearts following and appeared in the Scottish Cup final defeat to Inverness Caledonian Thistle.
McDonald, 29, said: ” I am delighted to have signed for Kilmarnock and to be playing in the Ladbrokes Premiership again. I’m really looking forward to working with Gary and helping the club progress next season.”
Kilmarnock boss Gary Locke said: “I am pleased to have signed Jamie, he is a top goalkeeper at a good age and will give us competition in that area. I believe a few clubs were after him so I am delighted he has chosen Kilmarnock.”