McDermott, 25, a product of Manchester City’s academy, has put pen to paper on a one-year deal following a trial at the club.
Dale boss Keith Hill told the club’s official website: “There’s a special, special talent there.
“He had missed his way, but he’s found himself and he’s driven. He wants to put into practice the losses of the last two or three years where he’s not really made the most of his ability.
“What we’ve seen since he has been at the football club is desire and a real focus on not losing anymore football time.
“There will be question marks – big question marks about him and our ability to revive him, but I feel as though we’re both on the same plan.
“If we can get the best out of Donal then we’ve recruited one hell of a player, if we can’t, then it hasn’t cost us too much financially.”
McDermott has had spells at Bournemouth, Huddersfield and Scunthorpe and was a member of title-winning Irish Premier Division side Dundalk’s squad this season before joining Salford City and Ramsbottom United.