Phelps also lost six months of funding from the sport's national governing body as a result of his second DUI arrest. The 29-year-old swimmer is banned from participating in USA Swimming-sanctioned meets through April 6, 2015.
Phelps can still train with his North Baltimore club, but he had already qualified for the world championships in Russia next August, which is the biggest international meet leading up to the 2016 Rio de Janeiro Olympics.
Phelps came out of retirement earlier this year with his sights set on competing at a fifth Olympics in Rio. Being barred from the world meet could put a serious dent in those ambitions.
His latest arrest came about a month after Phelps won three golds and two silvers at the Pan Pacific Championships in Australia. He had retired after the 2012 London Olympics, having won a record 18 gold medals and 22 medals in four games.
Phelps' monthly funding stipend of $1,750 will be halted for six months, costing him a total of $10,500. That is small change compared to the millions he earns through several major endorsements, including Aqua Sphere, Subway, Under Armour, Omega and Master Spas.
"Michael accepts USA Swimming's sanctions," according to a statement from his representatives at Octagon. "He has apologized for his actions and, as he shared yesterday, is taking steps to address them."
Over the weekend, Phelps announced he was entering a six-week, in-patient program, a week after he was arrested and charged with drunken driving in his hometown of Baltimore.
"Swimming is a major part of my life, but right now I need to focus my attention on me as an individual, and do the necessary work to learn from this experience and make better decisions in the future," he said in a series of posts on his Twitter account.
U.S. Olympic Committee CEO Scott Blackmun said, "We think the sanctions are appropriate and we are glad that Michael is seeking help. We are grateful that nobody was hurt and appreciate the speed at which USA Swimming and Michael took action."
USA Swimming said Phelps violated its Code of Conduct, and cited a section of its 2014 Rule Book in punishing Phelps. Its executive committee approved the sanctions, which take effect immediately.
"Michael's conduct was serious and required significant consequences," said Chuck Wielgus, USA Swimming executive director. "We endorse and are here to fully support his personal development actions."
While Phelps was still working out his schedule for the upcoming year, he will miss the first three U.S. Grand Prix meets in Minneapolis in November, Austin, Texas, in January and Orlando, Florida, in February.
The earliest he could return to Grand Prix competition would be at a meet in Mesa, Arizona, that begins April 15.
USA Swimming's punishment was its harshest ever imposed on its superstar. The governing body suspended Phelps for three months in 2009 after a photo emerged of him using a marijuana pipe, even though he was not charged.
USA Swimming took no action after Phelps' 2004 drunken driving arrest when he was 19.
Phelps was charged on Sept. 30 with driving under the influence, excessive speed and crossing double lane lines on Interstate 95. He registered .14 per cent on a blood-alcohol test after he was stopped on a speeding violation; the legal limit is .08 per cent in Maryland.
His trial is scheduled for Nov. 19.
If convicted, Phelps faces up to one year in jail, a $1,000 fine and the loss of his driver's license for six months.
In 2004, Phelps was arrested and charged with drunken driving on Maryland's Eastern Shore, fresh from the Athens Olympics, where he won six gold medals.
Phelps pleaded guilty to the charges, but as a young first-time offender he avoided conviction. A judge imposed 18 months' probation and a fine but waived the conviction, which means Phelps now faces the same penalties a first-time offender would.