Wallace joined the MIT Sloan School of Management faculty as a visiting professor in 1973. Her promotion to full professor in 1975 made Wallace the first woman to gain tenure at Sloan.

Through her scholarship, Wallace spearheaded a precedent-setting legal decision in a federal case that reversed sex and race discrimination in American industry. She directed studies for a federal lawsuit against AT&T, then the largest private employer in the United States. The suit led to a 1973 decision that the company had discriminated against women and minority men. The company agreed to pay millions in back wages and to make other pay adjustments. The verdict also brought about changes in transfer and promotion policies and recruitment criteria.

The case, which Wallace wrote about in her book, Equal Employment Opportunity and the AT&T Case (MIT Press, 1976), was an extension of her own life, background and interests. She continued to work in these areas after her retirement, even agreeing to spend the next six months helping Sloan School Dean Lester C. Thurow improve the school's response to sexual harassment problems.

When she retired in 1986, scholars in industrial and labor relations and economics from around the world gathered at MIT for a conference in her honor. In addition, the Sloan School endowed the Phyllis A. Wallace Doctoral Fellows Fund, which provides support for blacks admitted to the School’s doctoral program, and the Phyllis A. Wallace Visiting Scholars Fund to provide support for black visiting scholars at the School.

Beginning [her] career at a time when neither blacks nor women had a fair chance, [she has] seen great progress toward equal employment opportunity-progress due in no small measure to [her] scholarship on the economics of discrimination in the labor market.

Mount Holyoke College, conferring honorary Doctor of Laws degree on Phyllis Wallace, 1983