Following the end of his playing career, Phelan moved into management. He first took a position as Gary Megson's assistant at his former club, Norwich City, before following Megson to Blackpool and then Stockport County. After Megson left Stockport, Phelan was hired by another former club, Manchester United, taking over as the assistant manager of the club's reserve team. Two years later, he was promoted to become Alex Ferguson's chief first-team coach, and in 2008 he replaced Carlos Queiroz as Ferguson's assistant manager. He remained in the position until Ferguson's retirement in 2013, when Ferguson's successor David Moyes replaced the entire coaching staff.