The visitors started the game with the expected whirlwind as they won a corner as early as the first 30 seconds when Craig Bellamy showed his first threat of
the afternoon.
Bellamy was creating problems on the Well right but his final ball was not finding any takers. He was the first to have an effort on goal when he combined with John Hartson but his effort was fumbled on to the post by Gordon Marshall and clear for a corner.
At the other end McDonald skipped past Bobo Balde on halfway but his final effort was blocked by Stanislav Varga as he burst into the box.
Celtic replied with a weak header from Hartson that fell into the arms of Marshall.
Motherwell won another free-kick at the edge of the box but McDonald skied
the effort high over the bar, McDonald then hit a weak effort wide from a Jamie Paterson corner.
Celtic took the lead they were looking for in 28 minutes, when Alan Thompson picked up a loose ball on the left and he drove to the by-line and his cross along the six- yard box looked harmless until Marshall palmed the ball into the path of Chris Sutton who made not mistake from eight yards.
It was Motherwell who started the second half the brighter forcing a corner in the first minute.
Paterson's kick was met by the head of Stephen Craigan and Didier Agathe was on hand to clear off the line. Willie Kinniburgh's follow-up shot was blocked by Jackie McNamara as Celtic scrambled clear.
Celtic came storming back and it was only Marshall in the home goal who denied them the vital second goal. Firstly he denied Bellamy one-on-one and then repeated the feat from Sutton.
He then produced a stunning point-blank save from a Hartson volley.
The visitors were severely punished for not taking these chances as they headed into a nervy final ten minutes.
With two minutes on the clock a long ball found Gerry Britton who neatly picked out McDonald and he hooked a spectacular volley past the stranded Rab Douglas.
As Celtic committed men forward to find the winner they were punished on the break as a long clearance found McDonald on the right and he cut in and scored thanks to a deflection off Varga.
The Celtic players and fans were left distraught as they saw their title dreams crumble as Rangers won 1-0 at Hibernian.