McNaught discovered the comet in a CCD image on 7 August 2006 during the course of routine observations for the Siding Spring Survey, which searched for Near-Earth Objects that might represent a collision threat to Earth. The comet was discovered in Ophiuchus, shining very dimly at a magnitude of about +17. From August through November 2006, the comet was imaged and tracked as it moved through Ophiuchus and Scorpius, brightening as high as magnitude +9, still too dim to be seen with the unaided eye. Then, for most of December, the comet was lost in the glare of the Sun.
Upon recovery, it became apparent that the comet was brightening very fast, reaching naked-eye visibility in early January 2007. It was visible to northern hemisphere observers, in Sagittarius and surrounding constellations, until about 13 January. Perihelion was 12 January at a distance of 0.17 AU. This was close enough to the Sun to be observed by the space-based Solar and Heliospheric Observatory (SOHO). The comet entered SOHO's LASCO C3 camera's field of view on 12 January, and was viewable on the web in near real-time. The comet left SOHO's field of view on 16 January. Due to its proximity to the Sun, the Northern Hemisphere ground-based viewers had a short window for viewing, and the comet could be spotted only during bright twilight.
As it reached perihelion on 12 January, it became the brightest comet since Comet Ikeya–Seki in 1965. The comet was dubbed the Great Comet of 2007 by Space.com. On 13 and 14 January 2007, the comet attained an estimated maximum apparent magnitude of −5.5.
The comet was visible in daylight about 5°–10° southeast of the Sun from 12 to 14 January, with a peak brightness of magnitude −5.5. Perigee (closest approach to the Earth) was 15 January 2007, at a distance of 0.82 AU.
After passing the Sun, McNaught became visible in the Southern Hemisphere. In Australia, according to Siding Spring Observatory at Coonabarabran, where the comet was discovered, it was to have reached its theoretical peak in brightness on Sunday 14 January just after sunset, when it would have been visible for 23 minutes. On 15 January the comet was observed at Perth Observatory with an estimated apparent magnitude of −4.0.