The future of the former Reading manager had been the source of speculation since Massimo Cellino's takeover of the club with McDermott's contract terminated in January only to be reinstated within a matter of days.
He became Leeds United boss in April 2013, replacing Neil Warnock. His side were beaten 2-0 by Nottingham Forest on Easter Monday after the Reds had won 2-1 at the City Ground in late December.
After impressing in charge at Ewood Park last season, Blackburn Rovers manager Gary Bowyer has been linked with the Leeds job.