Adams has decided to take a break from the game but will return to Norwich in July to take up a role that is still to be confirmed. The club have started the process to appoint a new manager to replace Adams, who has been in charge since taking over from Chris Hughton towards the end of last year.
Adams said: "I firmly believe that we are still on course for a crack at promotion back to the Premier League. That is where this club belongs. However, I feel it is in the best interests of the team that an immediate change is made in order to ensure a positive impact on results."
Phelan took up the role of first team coach recently and now has the opportunity to stake a claim for his management role, and he starts with a game this weekend against leaders Bournemouth.