I would say that both are correct, and in some cases they're interchangeable, but in some cases they have different meanings.
As Adam says, we usually use "in the street" to talk about something that is in the part of the street where cars drive. "Don't walk in the street, it's dangerous." "After the accident, there was a lot of glass in the street." (You could say "on" in these sentences, but "in" sounds more natural.)
We use "on" to talk about something that is along the side of the street. Houses are "on" a street. Shops are "on" a street. When we talk about walking "on the street," we usually mean walking on the sidewalk or pavement beside the street.
You can say "there are cars in the street" or "there are cars on the street." To me, "in" sounds better, but "on" doesn't sound wrong. I would say that "in" seems to refer to the /space/ that the cars are in (they're in the area that we consider to be "the street"), and "on" refers to the actual surface they're driving on (they're driving on top of the road pavement, in other words, the street).
"I dropped my phone in the street" means you dropped your phone in the part of the street where cars drive, perhaps while you were crossing the street. "I dropped my phone on the street" could mean the same thing (you dropped your phone on the street pavement), or it could mean that you dropped your phone while you were walking along the side of the street.