Reigning champ Dressel clenched a fist in the direction of flag-waving American fans after clocking an astonishing 49.50 seconds in Gwangju to eclipse the American legend's old bodysuit mark by 0.32 and rob him of a second world record in 48 hours.
Dressel's fireworks were matched in the next event when American teenager Smith crushed the women's 200m backstroke world record, before Russian Anton Chupkov emulated them as he stormed to gold in the 200m breaststroke.
But Dressel, who has already won three gold medals this week, remains the hottest ticket in South Korea.
"It can be a scary thought," said Dressel, who looks on course to match or even surpass the seven golds he scooped at the 2017 world championships in Budapest.
"I woke up today and I wanted to do it," added the 22-year-old, who logged a 21.18 in the 50m freestyle semis after a quick turnaround.
"I didn't really have the nerves, I just wanted to do it. Records are meant to be broken, I hope Michael was happy watching me do that."
Phelps, the most decorated Olympic athlete of all time, has lost both of his 2009 long course butterfly world records in Korea after Hungarian teenager Kristof Milak destroyed his previous mark in the 200m fly.
A record-breaking night helped turn the spotlight back on swimming after a week of athlete protests and insults targeting China's Sun Yang, the 11-time world champion who a FINA doping panel report has accused of destroying blood vials after a visit from drug testers.
Sun's Australian coach Denis Cotterell told AFP that the hulking Chinese athlete has been made a scapegoat for grievances swimmers have against FINA, the sport's governing body.
"You can't have the performances he's had over the years without doing the work," he said. "He's tested year in, year out and winning every year."
Manuel exploded from the blocks in lane one to win gold in the women's 100m free in 52.04 ahead of Australian Cate Campbell and Sweden's world record holder Sarah Sjostrom.
"I felt a lot of pressure to repeat," said Olympic champ Manuel. "It feels amazing."
Chupkov found an extra gear off the final wall to snatch 200m breaststroke gold in 2:06.12 -- knocking more than half a second off the previous world best, with Aussie Matt Wilson taking silver.
Smith covered her face with her hands after shattering the women's 200m backstroke world record, clocking 2:03.35 to erase Missy Franklin's old mark by more then seven tenths.
"I'm in shock," gasped the 17-year-old. "I didn't think I'd ever do that -- it's crazy."
Sun, who retained his 200 and 400m free titles this week, and China finished a distant sixth in the men's 4x200m freestyle behind winners Australia.
Mack Horton, who refused to take the podium after losing to Sun in the 400m final last weekend, conjured an astonishing late fightback to anchor the Aussies to gold in a time of 7:00.85 with Russia taking silver and the United States bronze.
Russian Yulia Efimova, who has twice tested positive for banned substances in the past, became the first woman to three-peat in the 200m breaststroke, clocking 2:20.17 -- more than two seconds faster than silver medallist Tatjana Schoenmaker.
Meanwhile, Evgeny Rylov retained his 200m backstroke crown in 1:53.40 and complete a Russian hat-trick of gold medals on day six.