The 52-year-old made 194 appearances for the Canaries, scoring 10 goals, between 1985-1989, helping the club win the Second Division title in 1986 and also captaining the team in the top flight.
He also worked as a coach with Gary Megson in 1995 and was voted into Norwich's Hall of Fame in 2002.
Phelan left Carrow Road for Old Trafford for £750,000 in 1989 and won a number of honours as a player before later returning as part of Sir Alex Ferguson's coaching team.
It is Phelan's first role since leaving United in 2013 and he will work alongside Gary Holt in manager Neil Adams' backroom team.
Adams told the club's official website: "It's really important we replaced Mark Robson with the best possible coach we could find and I decided Mike was the outstanding choice.
"I'm delighted to bring in someone with Mike's experience to work with myself, Gary Holt and the rest of the coaching staff
He's someone who has a strong connection with Norwich City and I know him well, having worked with him before when I was a player and he was coaching here."
Phelan said: "I am delighted to have the opportunity to return to Carrow Road
I have many fond memories and am looking forward to helping Neil and the team to progress and ultimately getting back into the Premier League where they deserve to be."
Source : PA
Source: PA