Everytime I defeat the mind flayers at the entrance to the mind flayer dungeon- Phaere is red and gets killed. I can't go back to the drow city because my cover is blown. How do I keep her alive so I can continue the game. Please let me know.

Well make sure you don't attack her or hit her with any spells and she should't turn red. Then everything will be fine.

cast healing spells on her and get your party to surround her

As Vaskez says, do not use any area effect spell, because they can make her turn on you, and depending on who is in your party change your tactics accordingly:

Warriors= surround all of your weaker units with the warriors and leave your strongest out where the Illithids/Ulithids/Mind Flayers appear. Then work your way out.

Spellcasters= leave the spell caster outside the spawning point of the creatures and summon creatures between your party and the creatures. Then cast spells on them.

Personally I have mostly warriors with 1/2 propper spell casters and do as many quests as I can before I go off on the main quest so that I these difficult parts are a breeze. Then I would go and finish off the quest I couldn't before I went on the main quest and get the really good equipment for the final battles and Throne of Bhaal.

Actually... this fight is a pushover... ...

Just cast one Death Spell and the fight will be over... ...

The particularly Mind Flayers involved in this fight have little or no Magic Resistance, so they will almost always be affected by the Death Spell.

Death Spell will not target neutral units, so you need not worry about that.

This fight is a joke... ...

Does Death Spell affect Mind Flayers.... Cool might have to try that

No, spells that make a save roll against magic usually *don't* affect Illithi. What's being said is that this particular bunch of Illithi are susceptible to 'em. That's because otherwise, it would be much, much more difficult to affect a rescue mission for Phaere.

I recommend throwing a few summoned bodies at the Illithi, first. Typically, they stun, then move in for the kill. While they're circling like vultures, they can be attacked quickly, up close.