In this paper, we propose a novel phase preserving spectral subtraction method for enhancing speech in noise. Instead of the conventional approach of carrying out subtraction on the magnitude spectrum in the acoustic frequency domain, we propose to perform subtraction on the real and imaginary spectra separately in the modulation frequency domain. By doing so, we are able to enhance magnitude as well as phase through spectral subtraction. Our experimental results have demonstrated that the proposed method improved magnitude and phase estimation significantly at low SNR, and accordingly it significantly outperformed existing methods in speech enhancement evaluated on the criteria of segmental SNR and PESQ.