Edit Text files in iCloud Drive on iPhone?

Tapping on a .txt file displays the content of the file, but you can't edit it. You can, however, use the share sheet to import the content into the Notes app. But you need to install a plain text editor in order to edit the .txt file itself.

You'll need to install a text editor from the App Store. You can also use the share sheet to import a .txt file into the Notes app and edit the text there, but that won't alter the .txt file itself.

There are a few good .txt editors in the App Store. It helps to understand that iOS uses an "app-based" file system rather than a file-based system found in desktop computers. Each app in iOS manages its own content, this setup allows for very easy sandboxing of content (an app cannot interfere with the data of other apps). This type of setup also effectively cripples malware.

Every file in the Files App, iCloud Drive, is already associated with an app else it would not even be there in iCloud Drive. So what happens when you just tap on the file and open it?

iOS is a fully sandboxed operating system. Files only exist in an iOS device in an app’s dedicated storage space, so there is no general file storage with text files unassociated with an app already installed.

I’m well aware of how iOS works. I was just curious what text files the OP was trying to edit that were in their files app and not already associated with an app that was capable of opening and editing them?

I prefer to look at the positive side of things. When I was a kid a mobile phone was a briefcase with a hard-wired handset and a 12-inch antenna sticking out of the top. Just be grateful that you have an entire computer in your pocket.