The 24-year-old was arrested on Monday afternoon and was being detained at Portlaoise Garda station, under section four of the Criminal Justice Act.
A Garda spokesman said the man was set free shortly before midnight last night. “A file is being prepared for the Director of Public Prosecutions,” he added.
Searches for the body of the disappeared 30-year-old nanny, who gardaí say was murdered, were wound down earlier in the evening.
Detectives launched a major search at the side of the M7 motorway with forensic teams, Garda Water Unit divers and other officers painstakingly examining a wooded riverside area.
A large section of the main Dublin to Limerick route was sealed off near Monasterevin, Co Kildare, and close to the Laois border, to allow investigators access a steep embankment leading to the location along the River Barrow.
The northbound carriageway was later reopened to traffic.
A separate search was also carried out at the rear of a house in Ms Phelan’s home town, about 20km away.
Forensic experts used a mini-digger and shovels to excavate ground at an address on Timahoe Road, in Portlaoise.
The sealed-off house was raided last night by investigating gardaí.
Garda sources also confirmed a 4x4 vehicle seized as part of the inquiry was being technically examined with a number of personal possessions discovered in the vehicle.
“We are at a very active stage in the investigation,” said one source.
Ms Phelan, who was four months’ pregnant, was last seen on Thursday Oct 25, after meeting a friend in the town.
From Cashel, Ballyroan in Portlaoise, she had met a friend at the Borris Rd roundabout in the town at about 6.30pm on Oct 25 and was last seen at 8.10 that night when she left a friend’s house.
She worked as a live-in nanny at The Hermitage, Portlaoise, and was in work until 6.15 that evening. Her employer raised concerns the next day after she did not return to the house.
Ms Phelan’s family held a candlelit vigil last Friday in the town and prayed for her safe return. Searches have been carried out at several locations in Portlaoise since she disappeared.