MacDonald, who told the Otago Daily Times three weeks ago he was weighing up his options for the immediate future, will likely play for Southland later this year before heading to Wales.
The South Wales Echo has reported MacDonald and former Otago hooker Tom Willis have signed for the Dragons.
MacDonald was a late starter to professional rugby but has been a major contributor to the Highlanders, both as a lock and a flanker, in recent years.
His rugby resume has also been bolstered by two campaigns with the Junior All Blacks and New Zealand Maori experience.
The Highlanders appear resigned to losing both MacDonald and captain Craig Newby after this season.
There are plenty of loose forward options but the Highlanders' locking depth will be stretched, with James Ryan taking an indefinite break from rugby and unlikely to play in Dunedin again.
Tom Donnelly and rising Southlander Josh Bekhuis will be left as the leading lock options, while the Highlanders will also try to regain the services of draft player Hayden Triggs.
Willis, a product of Kings High School, has played five tests but has not been in the All Black frame in recent seasons.
It has been speculated that former Highlanders first five eighth Nick Evans was also a target for the Dragons, but Evans priced himself out with a $750,000 tag.
