McDonald frozen out at Millwall
McDonald, 30, was left out of Millwall’s side which lost 3-0 at home to Reading on Saturday and also missed their 1-1 draw with Sheffield Wednesday on Tuesday.
The ex-Celtic striker, who hasn’t played for Australia since a friendly against Scotland in August 2012, was rumoured to be interested in a switch to Hibernian in midweek, while he was linked with a shock move to China.
Although nothing materialised, Holloway confirmed McDonald had explored his options ahead of the closure of the January transfer window, prompting his exclusion from squad training.
"Scott and I have had some discussions," Holloway, who took over at Millwall last month, told News At Den. "He needs to deal with how he feels and where he is in his mind.
"I haven't got any issue with him, we're getting on fantastically well. I never say never to anyone. But I've told him how I feel and I went without him on Tuesday night.
"If that helps him to do what I want, then there is no problem between us and I will have no issue with welcoming him back to the fold.
"But if he does what he thinks is right, and not what I think is right, then he won't be here, it is as simple as that."
McDonald joined Millwall at the start of the season and has 18 months left on his current contract.
The striker has managed three goals in 21 appearances, although his last strike was November 2.
Millwall have recently reinforced their squad with a number of new faces, including strikers DJ Campbell and Simeon Jackson who'll rival McDonald for regular games.
Holloway added: “Do I want to move someone who is capable of scoring a lot of goals when it's surely my job to cheer him up and make him happier?
"I think it is respectful to be straight with someone and tell them exactly what you want, what you don't like and what you want him to think about.
"I will never slam the door in anyone's face. I hear lots of managers say so-and-so will never play for them again, but that's not me.
"I've chosen not to play Scott or involve him. I've asked him to think about a few things. Me and him will be revisiting that and he'll either be playing for me again or for someone else.”