Phelan had been in caretaker charge since the summer departure of Steve Bruce, overseeing seven Premier League games so far from which the promoted Tigers have picked up seven points.
It first emerged in September that Phelan had been offered terms by the club's owners, who have been in takeover talks with several separate interested parties.
An agreement has now finally been reached, with a statement from Hull on Thursday saying: "The Tigers are pleased to confirm the appointment of Mike Phelan as the club's new head coach on a permanent basis."
Phelan is hoping his patience is rewarded with a successful season for Hull.
He said of the deal: " It's been a while in coming, but I'm happy with the position I am now in and looking forward to the challenge ahead
"It has taken time but things have to be done correctly with these matters
What is important now is that we move forward and help this squad of players be successful for this football club.
"It's exciting to step over that threshold into management, and I'm looking forward to working with this group of players that has done so well so far.
"The support I have received from everyone has been magnificent and I want that to continue because the challenges ahead are huge
The fans have been excellent through the last few months and the players have given me their full backing.
"I'm looking forward to what is to come now so roll on the next few games."
Phelan will have to cope without Stephen Clemence, who has left his job as first-team coach to take up the same role at Aston Villa following Bruce's appointment as boss on Wednesday
Hull won their opening two games of the Premier League season against Leicester and Swansea and were then only narrowly defeated by Manchester United, with former Red Devils assistant boss Phelan named the division's manager of the month for August
That was followed by a draw at Burnley, and there have also been EFL Cup victories at Exeter and Stoke, although defeats in their last three league games - albeit to Arsenal, Liverpool and Chelsea - have halted the early momentum.
This will be Phelan's first stint as a number one
He left United in the summer of 2013 when Sir Alex Ferguson retired, and in 2014 joined the coaching staff at Norwich for a short stint before becoming number two to Bruce at Hull in early 2015.
Hull, currently 15th in the top flight, are at Bournemouth on Saturday.
Source : PA
Source: PA