The story is almost true, but not quite. On November 28, 2000 Katherine Ortega (pictured, bottom) bought a box of chicken wings at a McDonald's in Newport News, Virginia. They were "Mighty Wings," which were being test-marketed in the area -- not Chicken McNuggets. She took the meal home, and then discovered that it contained the fried chicken head. She contacted the restaurant, which offered her a refund or another box, and then she contacted the media.
Reporters who examined the head said the batter on it looked exactly like the batter on the wings, so it didn't seem to be something she had created herself. However, lawyers advised her against suing. She had found the head before biting down into it, and a chicken head in a box of chicken parts cannot not be considered a foreign object (unlike a rat's head, for instance). Both these factors lessened her ability to make a claim of psychological trauma.
The photo of the chicken head was taken by Sangjib Min for the Virginia Daily Press. It was never reported how the chicken head managed to make it through the manufacturing process to end up in Ortega's meal.
Links and References
"You deserve a beak today," (Dec 1, 2000). The Washington Post.