A hamstring tear means Peel, whp plays his rugby with English side Sale Sharks, will be out of action for at least a month.
Phillips is promoted from the replacements bench to the starting line-up and resumes his Ospreys regional half back partnership with James Hook, whilst London Irish scrum half Warren Fury is handed the chance to win his third Wales cap as a replacement.
Scarlets scrum half Martin Roberts has been ruled out of the trip to face the Azzurri with a rib cartilage problem, but his fitness will be judged again next week with a view to being in contention to face Ireland at the Millennium Stadium the following weekend.
"Martin has not been able to take a full part in training this week, but will be re-assessed early next week," said Wales physio Mark Davies.
"Dwayne will be out for a minimum of four weeks after a scan revealed a tear to his hamstring and we all wish him a speedy recovery."