The 52-year-old ex-defender played with Bruce at Old Trafford and was recently assistant at Norwich City, and replaces Steve Agnew who left Hull to join Middlesbrough in December
"I'm extremely pleased to be at this football club," Phelan told the Hull website.
"I'm looking forward to working with Steve and hopefully I can bring with me some of the things I have learnt over the years to help us improve."
Hull are 18th in the Premier League table, one point from safety. Their next match is at Manchester City on Saturday.