The institute was established in 1990 through a benefaction from the late Dr Daniel McLean McDonald, a successful industrialist: the endowment totalled approximately £11 million.

The benefaction enabled the university to construct purpose-built premises for the Institute which include research rooms and laboratories, together with storage space, a seminar room and a modest library.

The Institute emphasises the value of archaeological science, and contains laboratories for geoarchaeology, archaeozoology, archaeobotany, and artefact analysis.

There are also research rooms for post-excavation work on major field projects.

In addition to providing space for projects and researchers, the McDonald Institute also has an annual programme of grants for Cambridge-based projects, and an active publications division which produces the McDonald Institute Monograph series and the twice-yearly Cambridge Archaeological Journal.