Douglas native McCarthy was a selector under Conor Counihan in his final year as Cork manager in 2013 and then became coach under Brian Cuthbert, taking time out at the end of 2014 before returning last summer.
He had been in the running to replace Cuthbert as boss before the role went to Peadar Healy.
In 2008, McCarthy was Douglas manager when they reached the Cork SFC final for the first and only time.
A member of the county panel from 1997 until 2002, McCarthy played in the 1999 All-Ireland final defeat to Meath, alongside his predecessor as Carbery Rangers manager, Micheál O’Sullivan.
O’Sullivan departs after four years in charge with the club having reached five semi-finals in the past six championship campaigns, including the 2014 final defeat to Ballincollig.