Wolves chief Kenny Jackett is keen to bolster his squad and has made midfield reinforcements one of his top priorities.
Jackett is believed to be a big admirer of McDonald and has been tracking the 24-year-old for some time after trying to sign him when he was in charge of Millwall.
McDonald has established himself as a key part of the Sheffield United squad since arriving on a free transfer of the summer of 2011.
The former Scotland international was rewarded for his impressive performances for the Blades with a new deal last summer.
United are reluctant to lose the former Burnley man, but Wolves are understood to have agreed an undisclosed fee with their League One rivals and given the Scot permission to hold talks and undergo a medical at Molineux.