The 30-year-old former rugby union international has not played since being sacked by Rugby Australia last May for posting on social media that hell awaits "drunks, homosexuals, adulterers" and other groups.
Folau, whose move to France attracted widespread criticism, was included in the Dragons' 21-man matchday squad for Saturday's home match against Castleford.
"He did deserve a second chance," McNamara told the BBC.
"I spoke to him in depth for a long period of time over a number of occasions. I felt it was right and he deserved the opportunity, it shouldn't be a life sentence what he was given.
"We researched Izzy as a person completely, as a coach my decision was based around his rugby league ability, his ability to add positivity to the dressing room and to really increase our opportunities of winning."
McNamara said he now has to ensure Folau, who left rugby league for Australian rules football in 2011, makes a smooth transition back to the code in the Super League.
"It's very difficult, but that's what the best players do, that's what the champions do, they thrive on the challenge," McNamara added.
"He's given himself a big challenge, not just changing sport, but changing countries, continents, everything that goes with it." (Reporting by Hardik Vyas in Bengaluru; Editing by Peter Rutherford )