Brey, who is now in his 18th season with the program, captured his 394th victory at the school, one more than Phelps, who led the program from 1971 to 1991.
Brey was honored with a postgame ceremony after the win in South Bend, Indiana. A banner commemorating Brey's milestone was unfurled as part of the celebration.
"What a way to get to 394 and 2-0 [in the ACC]," Brey said after the on-court celebration.
The 58-year-old has led Notre Dame to the Elite Eight twice in the past three seasons. In all, Notre Dame has reached the NCAA tournament 12 times, including seven consecutive appearances, under Brey.
He is often mentioned in college basketball circles as a possible replacement for Krzyzewski, his former boss, if and when Coach K retires from his post at Duke.
Phelps, a former ESPN analyst who led Notre Dame to the 1978 Final Four, told the Chicago Tribune that he is happy for Brey.
"I went into his office last week and said, 'Look, when this happens, after that game, if it's here in South Bend, I want to give you the game ball to pass you that torch,'" Phelps told the publication this week. He followed through on that promise Wednesday night.
Brey's feat is pleasant news to Fighting Irish fans who learned Tuesday that senior star Bonzie Colson suffered a left foot fracture in practice that could sideline him for eight weeks. Colson is averaging 21.4 points and 10.4 rebounds per game. His injury changes projections about Notre Dame (12-3, 2-0) in the stringent ACC.
"When I think back about the record-breaking game, I will think about losing Bonzie Colson the day before and losing [point guard] Matt Farrell halfway through the game," Brey said. "Our group just really responded. I couldn't have been prouder."
Brey, now sitting at 493 total wins in his career, should join the 500-win club this season.