Originally, this name was MacCraith, which means son of Raith (raith meaning prosperity). One McGrath sept, or clan, was based in counties Donegal and Fermanagh, the other in counties Clare and Limerick. In the 16th century a McGrath from the Donegal and Fermanagh sept built Castle Magrath at Pettigo near Lough Derg, and the McGraths were guardians of the monastery at Lough Derg.

There are various links with the MacGrath name around Dungarvan, Co. Waterford. In the town itself, what is known as Abbeyside, or McGrath's Castle, dates from the 12th or 13th century. Only the west wall remains. In the nearby ruins of the 13th-century Augustinian priory is a tomb with the inscription "Donald McGrath, 1490." He was one of the Co. Waterford sept, which had migrated there from Clare and Limerick.

In Co. Down, the name is usually spelled as " McGraw".