The fast-food chain has taken over the operation of its restaurants in Mildura and Irymple after its franchisee Robert Vigors was caught on camera questioning the Aboriginality of an Indigenous artist.
McDonald's has taken swift action to remove a franchisee who was filmed questioning the background of an Aboriginal man and woman in Victoria's northwest.
Rob Vigors and Karen Ridge are understood to have walked onto Robby Wirramanda's property at Mildura and taken an issue with an Aboriginal flag flying on the property.
Mr Vigors and a woman, believed to be Ms Ridge then engage in a verbal confrontation, with the video later posted to social media by a relative of Mr Wirramanda.
The woman can be seen tugging at the flag but is unable to remove it from its perch.
Mr Wirramanda can then be heard mocking the woman's efforts, remarking "it's too strong for you Karen!"
"You are a racist pig," he continues.
In reply, the woman can be heard questioning Mr Wirramanda's Indigenous roots.
"Which half of you is Aboriginal?" she says.
"Which one per cent of you is Aboriginal. You've got nothing in you that is Aboriginal?" Mr Vigors adds.
After a brief exchange, Mr Wirramanda wishes the woman a good night.
"Go and live in your f****** humpy down the river," she replies.
The video of the incident quickly went viral, with #toostrongforyoukaren trending on Twitter.
A spokesperson for McDonald's Australia has confirmed to SBS News it has now taken over operation of its fast-food outlets which were being operated by Mr Vigors.
“McDonald’s confirms the company has taken over the operation of the Mildura and Irymple restaurants, effective immediately, and Robert Vigors has left the system and is no longer involved.
“McDonald’s will be engaging with its employees regarding the change in arrangements, to ensure the ongoing operation of the restaurants.”
“The comments made are unacceptable and do not reflect the beliefs of the company as an inclusive workplace for our employees and customers. The matter is currently under investigation,” the spokesperson said.
The incident could see further fallout with Victoria Police confirming it is now looking into the fracas.
"Police have spoken to all parties involved and an investigation was initiated at the time," a spokesperson told SBS News.
"The investigation is ongoing."
While many viewers have been outraged by the confrontation, some social media users have taken a light-hearted approach to the #toostrongforyoukaren moment.