The Royals surged into a 4-0 lead after 37 minutes, but the Gunners came roaring back after the interval, forcing extra time and eventually triumphing 7-5 after an unforgettable contest.
McDermott was devastated by his side's collapse after what he called an "extraordinary" first-half showing, and believes Theo Walcott's strike just before the interval proved the turning point.
"I wasn’t happy at half time," he revealed. "I thought we completely dominated the first half, so to concede a goal like that out of nothing was disappointing.
"To go in at 4-1 instead of 4-0 gave them impetus they didn’t need. You can’t give good players a lift like that.
"We didn’t play in the second half. It was kamikaze football, even in extra time when we got to 5-5.
"To be 4-0 up and playing as well as we were, and then for them to turn it around like that, it’s embarrassing for all of us.
"We have to take it on the chin and we have to move on very quickly, because we can’t do anything about it now."
The match officials decided on four minutes of injury time, but Walcott bundled home Arsenal's equaliser in the 96th minute, and afterwards McDermott was at a loss to explain where the extra two minutes came from.
"He gave four minutes and Arsenal scored in the sixth," the Royals boss continued.
"You can understand giving an extra 30 seconds at the end, but two minutes on top of four…you can’t get the time as wrong as that, but he did."
It is a contest which will surely go down as a classic of the modern era, but McDermott insisted that, for him, it will bring only bad memories.
"I know this game will be remembered for a long time, and that makes me feel a lot worse," he concluded.