Police Commissioner James O'Neill and Mayor Bill de Blasio presided over the standing room only ceremony marking the one-year anniversary of McDonald's death.
"We were all touched so positively by his life and moved by his example," the mayor said.
McDonald was appointed to the NYPD on July 16, 1984.
Two years later he was shot three times while investigating a bicycle robbery in Central Park. He was newly married to wife Patti-Ann, who gave birth to the couple's son three months after the shooting.
Doctors told his wife that he wouldn't live through the afternoon. McDonald survived. The shooting left him paralyzed from the neck down and needing a ventilator to breathe.
He became a global voice for peace after forgiving the teenage gunman, who was sentenced to 10 years in prison.
McDonald died on Jan. 10, 2017 at age 59 after suffering a heart attack.
He is survived by his wife, Patti Ann, and his son, Conor, who followed in his father's footsteps and is now a sergeant in the NYPD.
"Steven lived life with a purpose -- to show us a better way," Patti Ann said at the ceremony.
"That's how great NYC is," Conor said. "Something so dark and ugly it became one of the most beautiful stories this city has to offer."
The plaque is inscribed with the words of St. Francis: "Lord make me an instrument of your peace," WCBS 880's Rich Lamb reported.
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