MacDonald has informed Villa owner Randy Lerner he wishes to be considered for the post on a permanent basis after operating for three weeks and five games as caretaker boss.
The former Liverpool midfielder made his decision in the aftermath of Sunday's 1-0 win over Everton.
Lerner has been full of support for MacDonald and put him under no pressure to make a quickfire decision.
But MacDonald is under no illusions as to how quickly he could go from hero to zero given the pressurised and results-orientated nature of modern-day football.
He said: "I know that managers, from week to week, if they win a game they are great.
"But if they lose a game everybody dissects it. I know how tough the football industry is.
"Every time you appoint a new manager it is a major decision at any football club.
"Are you getting it right, is it going wrong?
"You only get something like three games in the Premier League don't you and then you are a terrible manager?
"So every time you have to appoint somebody, it is a major decision."
MacDonald admits he thought carefully about putting his name forward as a candidate to take over from O'Neill who quit five days before the start of the new campaign.
He said: "I'd like to think that I actually think about all things, whether it is football or anything.
"I was not naive in thinking this was going to be an easy decision to make.
"I am aware of how big a decision this is.
"But the staff here have been fantastic. They have been very, very supportive and they are all keen for me to want to be involved.
"When I've spoken to family and people like that, they have always said 'make your own decision - but you have worked hard to get to here'."
MacDonald has the support of senior players such as skipper Stiliyan Petrov, Luke Young and James Collins who have all spoken publicly about their admiration for him in recent days.
He has been a key member of developing a crop of promising youngsters as Villa's reserve-team coach.
But his only other experience of senior management when he temporarily replaced Brian Little after he left Leicester in the mid 1990s.