The Modified V-38 TIE Phantom is the ever first starfighter to have a cloaking device in the Galaxy. The cloaking device acts like a shield to render the fighter totally invisible to sensors and visual sight. The TIE Phantom project is a breakthrough in cloaking technology, Imperial Engineers have been able to get such a device small enough, as well as drastically lower its power needs so it can be installed on a starfighter. The cloaking device itself requires Oridium Ore for it to operate. Unfortunately, the TIE Phantom has to decloak to be able to fire its weapons and apparently a decloaked TIE Phantom can partially detect cloaked TIE Phantoms (observed in Rebel Assault II). Even though the Phantom fighter has to decloak, they can still get the drop on the enemy and surprise attack them.

    Unlike the rest of the TIE series, these starfighters take a pilot and gunner. They enter the fighter through a bottom elevator ramp, located behind the cockpit. The pilot is situated behind and to the right of the gunner. Also, instead of using TIE racks to hold these starfighters, TIE Phantoms use landing emplacements located on the deck or landing claws that grapple the bottom section of the top solar collector to hold them while not in use. Like others in the TIE series, these starfighters do not have landing gear. The TIE Phantom project was headed by Admiral Sarn, who spearheaded special weapons research. This project was conducted and tested in the Dreighton Nebula or it is better known as the Dreighton Triangle to spacers. Using the cover of unexplained disappearances of starships and the roaming ghost ships of the lost opposing fleets that fought at the nebula 40 years before, the Galactic Empire was able to secretly develop the Phantom fighters.

    With the potential of these starfighters, Lord Vader took personal interest in it since, he could have the power crush the Rebel Alliance with near impunity. These starfighters came into operation after the Rebel's B-Wing started to see action, which was after the Battle of Yavin. It was the Rebel YT-1300 Corellia Star that discovered the Empire's secret, although the transport was later pursued, captured and its pilot was killed during the boarding action. Two B-Wings were sent to investigate the disappearance of 3 X-Wings that were patrolling the Dreighton Nebula (the X-Wings were destroyed three days earlier in a demonstration to Lord Vader by Admiral Sarn to show the awesome potential of the TIE Phantom). When the Rebels received a distress call from the YT-1300 Corellia Star, the Rebels were too late to save the transport, they fought their way through TIE Fighters to its last known location. The Rebels didn't know how the TIE Fighters were able to attack them so quickly. Just as Rookie One picked up the YT-1300's distress beacon on the planet below, the B-Wings were ambushed by TIE Phantoms. Rookie One was shot down and force to eject on the planet below, but his commanding officer and his B-Wing were destroyed.

    It was Rookie One who stole the Corellia Star from the local Imperial Mining Base after being shot down and took the craft to Rebel High Command. From the flight recordings of the Corellia Star, Admiral Ackbar ordered the destruction of a hidden Imperial Mining Complex located in the Belt of Arah asteroid field (location was revealed by the Corellia Star's flight recorder) by a X-Wing strike force: Rascal 1, 2 and 3. Ultimately, the Rebels were successful, however, Rookie One was the sole survivor of the three X-Wing strike force since, several TIE Phantoms ambushed the strike force before the Rebels would escape into hyperspace. With Rookie One's survival, his X-Wing's flight recorder showed the Rebels the capabilities of the TIE Phantom. Admiral Ackbar realizing this new Imperial threat to the Rebel Alliance ordered the capture of one TIE Phantom, in hopes of finding a countermeasure to this new Imperial weapon.

    The TIE Phantom never got the chance to inflict sever losses upon the Rebellion, due to the Rebels Rookie One, Ru Murleen and various other Rebels who destroyed the TIE Phantom Project. It was Rookie One and Ru Murleen who destroyed the SSD Terror, which was scheduled to launch these starfighters, the manufacturing facility and all of the TIE Phantoms at Imdaar Alpha. They achieved this by using a stolen TIE Phantom, which they later brought to a Rebel Base, where Rookie One was commended. The Rebels hoped that their engineers would be able to study and adapt the cloaking technology to their own starfighters in an attempt to have an advantage over the Empire. Fortunately however, the Rebels never got the chance to learn of the secrets held within the fighter, since the fighter activated its self-destruct and destroyed itself (The fighter most likely self-destructed, since the Rebels didn't input a security code to deactivate the self-destruct). The exact number of Rebel losses caused by the TIE Phantom is not clear, however, it is known the that this fighter is responsible for the destruction of 3 X-Wings on patrol in the Dreighton Nebula, 2 B-Wings sent to investigate and 2 of 3 X-Wings that destroyed the Imperial Mining Complex in the Belt of Arah.