To convert a diazonium salt into a phenol, the diazonium group ($-N_2^+Cl^-$) is replaced by a hydroxyl group ($-OH$). This is achieved by warming the diazonium salt aqueous solution with water ($H_2O$) or dilute acid.

Reaction: $p\text{-}CH_3-C_6H_4-N_2^+Cl^- + H_2O \xrightarrow{\Delta} p\text{-}CH_3-C_6H_4-OH \text{ (p-Cresol)} + N_2 + HCl$

Analysis of other options:

• $H_3PO_2$ (Hypophosphorous acid): Acts as a reducing agent, replacing the diazonium group with hydrogen ($-H$), yielding Toluene.
• $C_6H_5OH$ (Phenol): Reacts with diazonium salts in a coupling reaction to form azo dyes (e.g., p-hydroxyazobenzene derivative).