Royals boss spotted the Everton dangerman on a trip to Portugal when he was chief scout.
But he was told the club did not have the funds to buy the big-haired Belgian at the time.
Fellaini, with six top-flight goals this season, is now poised to line up against Reading in tomorrow's clash with the high-flying Toffees at Madejski Stadium (3pm ko).
McDermott explained: "Fellaini is a terrific player who is having a great season with Everton.
"I remember watching him play when he was 17 for Belgium Under 21s in Porto.
"I asked his agent about him and he said he was worth £7 million even back then.
"I called Nick Hammond (director of football) to tell him I'd spotted this 6ft 5ins teenager but unfortunately we didn't have £7 million to spend.
"If I'm honest, we haven't got £7 million to spend now."
Royals face a tough task tomorrow in their bid for a first Premier League win of the season.
David Moyes' Toffees are currently fourth in the table and have lost only once in the league this season.
Royals, meanwhile, have suffered just one defeat in their last six games, the other five ending in draws.
But supporters are growing restless and a small minority booed McDermott's men off the pitch after last weekend's 0-0 home draw with Norwich City.
McDermott reacted this week by claiming fans' criticisms were unfounded and he is asking them to get right behind the players tomorrow.
"Now we're at home against a very good Everton side and if ever we needed the crowd behind us it will be this Saturday," declared Royals' boss.
"Believe me, the players in our dressing room want to win more than anybody and I really mean that.
"This club has been used to winning games over the past few years, but for the last 10 league games we haven't won once and we're trying our very best to improve on that."
But McDermott feels they are not far away from securing that elusive first win.
"We're getting there," he added. "People can say what they like about us but I know the quality we have at the club.
"I know this group better than anyone and there is nothing but harmony.
"You can see how much effort we put in against Norwich. It wasn't a great game but we could easily have nicked that 1-0.
"We've only conceded one goal in the last two league games so if we can start finding the net on a regular basis we will start winning."
And he also suggests Everton's slick, attacking approach might suit Reading down to the ground.
"Norwich didn't have a single shot on target last weekend," he stated. "They came for a point and they got it. But Everton will be different because they'll be coming to win.
"They have a fantastic manager in David Moyes and they're a fantastic club with a great tradition.
"I know David Moyes very well. We met before a cup match a few years back and I have a lot of time for him and he's always had time for me too."
Reading winger Jimmy Kebe has been ruled out of tomorrow's game with a groin strain.
Everton have also been dealt a blow with Kevin Mirallas (hamstring) joining Darron Gibson (thigh), Victor Anichebe (hamstring) and Tony Hibbert (calf) on the injury list.
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