As the province's population became more urban and as social issues came to the forefront the NDP had a major breakthrough in 1967 rising from seven seats to 20. This new success resulted in increasing pressure for new leadership as the party was seen as a potential victor and many activists felt a younger leader was needed to catch the mood of the times. Jim Renwick challenged MacDonald for the party leadership in 1968 but lost. In 1970, Stephen Lewis was able to martial support among the Steelworkers union with which his family had strong links (David Lewis had represented Steel as a labour lawyer for many years) and MacDonald decided not in June not to seek re-election as leader so as not to subject the party to a divisive fight. At the leadership conventionthat fall Stephen Lewis defeated Walter Pitman and succeeded MacDonald as Ontario NDP leader.

MacDonald remained in the legislature until 1982 when he resigned as an MPP in order to give newly elected leader Bob Rae an opportunity to enter the legislature. In 1986, MacDonald was appointed Chair of the Election Finances Commission, a post he retained until 1994.