The human remains was found by two women out walking.
The grim discovery was made near Redcastle on the shores of Lough Foyle.
Gardai sealed off the area and forensic experts were at the scene last night.
The body was so badly decomposed, Garda say they are not sure if it is that of a man or a woman.
It was discovered on the shoreline in the townland of Ballyrattan.
Gardai say it may take several days, or even weeks, before they will be able to identify the body.
They will have to use dental record searches and DNA tests in an effort to identify it.
Gardai sealed off the scene as an investigation gets underway.
A spokesman said they were keeping an open mind on the incident.
Local people say the two women who found the body were very distressed by the incident.
With the tidal nature of the Lough, the body could be that of a missing seaman, or from someone missing from the Lough or river.
“The body has been removed from the scene and has been taken to Letterkenny General Hospital for a post mortem examination,” said a Garda spokesman.
Gardai and PSNI officers are today checking records for missing people on both sides of the Border.
The body of a man found on the Co Donegal side of the lough last year was that of a man missing in Co Derry.
Assistant state pathologist Dr Khalid Jabbar is to arrive at Letterkenny General Hospital this afternoon in a bid to help identify the body.
Garda Supt Kevin English said dental records of missing people were being prepared.
He said there was no way of knowing yet how the person died.
“The body is in a badly decomposed state and we suspect it has been in the water for at least four to five months.
“There is some body tissue but we are preparing dental records from missing for examination,” he said.
Supt English confirmed the remains were found in a remote area and said it came as a shock to the two women who made the discovery.
“This was a grim discovery. It was possibly washed up o a high tide and was partially concealed.
“This was certainly not a pleasant discovery. Fortunately this remains belongs to some family and it will bring some closure to some family,” he said.