United are undefeated so far this season, and Phelan, who spent fourteen years at the club, believes Mourinho's side are title contenders.
"I think they are getting that (fear) back slowly because now at Old Trafford there is an atmosphere, there is an expectation and the players are reacting really well to it," Phelan told Sky Sports.
"You have to build that reputation that fear and I think it was lost a little bit in the time Sir Alex had left.
"In the off-season, he's gone about his business really, really well. I think he's come back fresh and he's added to the squad and I think they are looking at a squad now that can really go the distance."