The Royals crashed to a 2-1 defeat to fellow strugglers Aston Villa that leaves them above bottom-placed QPR on goals scored only.
McDermott's men had begun the day able to climb out of the bottom three with a win and had led thanks to a calamitous Nathan Baker own goal on the half-hour.
But they failed to cash in on their luck as Christian Benteke levelled two minutes later before Gabby Agbonlahor profited on hesitant defending to thump in the winner in first-half injury time.
The full-time whistle was greeted by boos for the second successive home match - after the Royals fans also missed the chance to escape the bottom three in a 3-0 reverse against Wigan a fortnight ago - and with trips to Manchester United and Arsenal next up, McDermott admitted his side had suffered a major blow.
"We're hurting. We are very much hurting at this moment in time," he said.
"It was disappointing today [Saturday] to say the least. It was rough.
"When we got 1-0 up I though we were ready to kick on. We didn't do that and that's cost us.
"We were disappointed with both goals. We've got ourselves into the lead and they've scored virtually straight after.
"We have to hold our hands up. We need to be better and see the game out.
"I know that and the players know that."
A fourth league defeat on the spin was made worse by QPR's 3-1 win over Sunderland to leave the Royals looking as the most vulnerable of the bottom clubs.
Trips to Old Trafford and Emirates Stadium before the end of the month could start to leave Reading adrift with just nine games left.
"They're not friendly (fixtures). They are big, big clubs in Manchester United and Arsenal," he said.
"We'll see where we are at the end of March and then go from there."
McDermott admitted he would now just be content to take his team's survival fight to the final day.
"I'd take that. If somebody said to me it was going to go down to the last game of the season when we play West Ham," he said.
"We were written off in August - you never know.
"If we can get on a run and get back-to-back wins - QPR have just proven that gets you back in the mix."
Villa boss Paul Lambert was full of praise for his side, especially Baker, after he recovered from his red-faced moment to help inspire a win to haul them three points clear of danger.
The 21-year-old defender completely missed a routine clearance before the ball hit his standing leg and bounced over the line.
"I though Nathan Baker was exceptional," he said.
"He has been for the past number of weeks since I've put him at left back.
"It was important his head never went down which it didn't. Being young the slight thing in my head was how he reacted.
"I've got to give him so much credit."
Baker's blushes lasted only a couple of minutes as Benteke equalised before Agbonlahor swung the game completely just before the break.
His strike capped a patient Villa move, that did require some poor Reading defending as well, as Stuart Taylor could only scoop Barry Bannan's deft touch against the post into Agbonlahor's path.
"I thought the goal was brilliant," he said.
"I think there was 20-odd passes and the finish was world-class. Some of our football was excellent. It was a massive game."