McAvennie moved to Celtic from West Ham United for a then club record fee of £750,000 on 2 October 1987. He made his debut for Celtic the following day in a 1–1 draw at home against Hibernian.
McAvennie made a slow start at Celtic and his progress was not helped when he got involved in an on-field fracas with Chris Woods, Terry Butcher and Graham Roberts in an Old Firm game in November 1987. McAvennie and Woods were sent off in the initial incident, whilst Butcher was sent off later in the game. All four were later reported to the Procurator Fiscal and appeared in court on disorder charges relating to their conduct in that game. McAvennie was found not guilty, Roberts not proven, whilst Butcher and Woods were both convicted of Breach of the Peace.
McAvennie eventually found his form at Parkhead, and his 15 goals in 1987–88 helped Celtic to a Scottish Premier League and Scottish Cup double. That season (the clubs’s Centenary Season), he was part of a formidable front trio for Celtic comprising himself, Andy Walker and Joe Miller. One of the high-points during the season for McAvennie were his two goals in Celtic’s 2–0 win over Rangers in January 1988. The Cup Final in May was particularly memorable for McAvennie as he scored two late goals to beat Dundee United 2–1, the winning goal coming in the final minute.
The following season, 1988–89, was not a happy one for Celtic and the team finished in third place in the league behind winners Rangers and second-placed Aberdeen. McAvennie, however, was one of Celtic’s few form players that season and he’d scored 11 goals by Christmas time. However, a broken arm sustained in the New Year game at Ibrox against Rangers curtailed his goalscoring. McAvennie also wished to return to London to enable him to spend more time with then girlfriend, glamour model Jenny Blyth. After a public row with manager Billy McNeill over being dropped for a league match at Tynecastle in March 1989 against Hearts, Celtic relented to McAvennie’s repeated requests for a transfer and sold him back to West Ham.