In November 1992 McGrain was appointed manager of Scottish Second Division side Arbroath. That season, McGrain led Arbroath to the quarter-finals of the Scottish Cup, losing 0–3 at home to eventual winners Rangers. The following season Arbroath played McGrain's former club Celtic in a Scottish League Cup tie and lost 1–9, a record defeat for the club. McGrain resigned in January 1994 due to illness. In his 14 months at Gayfield Park, McGrain became popular with their fans and was followed by a group of supporters known as 'Danny McGrain's Bearded Army'. These supporters attended games wearing tribute T-shirts and stick-on beards, affectionately mimicking McGrain's own trademark beard.