Pope Pius VII appointed Macdonell Bishop of the titular see of Rhesina and Vicar General of Upper Canada in February of 1820. Macdonell used his influence to convince the British government to withdraw its opposition to Canadian titular bishops. This paved the way for Bishop Macdonell's appointment, on February 14, 1826, as first bishop of Upper Canada under the title of Bishop of Kingston. The new diocese of Kingston comprised all of Upper Canada. Macdonell oversaw the establishment of 48 new churches, including Toronto's first church and cemetery, St. Paul's, established in 1822. During his travels throughout the British Isles, he contracted pneumonia and died shortly afterwards at Dumfries, Scotland on January 14, 1840. His body was temporarily buried in St. Margaret's Convent Chapel in Edinburgh. Bishop Macdonell was finally laid to rest in St. Mary's Cathedral, Kingston on September 26, 1861.

In 1831, Bishop Macdonell issued regulations for the Catholic missions of Toronto regarding elections, churchwardens, finances, accounts, fees, pews, mass, schools, salaries, inventory, and parish registers. A point of interest is Item 13. It places St. Paul’s church under interdict until “the congregation will give satisfactory and substantial proofs of subordination and submission to the authority of their spiritual Superiors.” Item 14 states the conditions under which the church may be reopened to the congregation. However, it also makes clear that it should be closed again, “should the people attempt forcible entry or behaved themselves in any manner indecorously or indecently.”