The club's academy manager has been in charge of first-team affairs since the sacking of Brian McDermott, while Gus Poyet, Nigel Adkins and Laurent Blanc have all been linked with the vacancy.
But goalkeeper McCarthy, who returned to the bench at the weekend after a four-month injury lay-off, believes Dolan is the right choice to help the Royals beat the drop.
"He's got a great method to the way he works and he gets the boys going," said McCarthy, whose side are seven points adrift of safety.
"I think he's come in and he'll do a good job for us. We'll have to see how the games turn out, but I think he's got a great chance and all the lads are with him.
"We've got a great team spirit and with the work he's done with us we think we've got a good chance of staying up. Eamonn's caretaker manager at the moment and depending on results we'll see how it goes from there."
Reading owner Anton Zingarevich is believed to be in the country to finalise a new appointment, having shown McDermott the door following a recent home defeat to Aston Villa that left the club mired in the relegation zone.