Starting with macOS Ventura and iOS 16, Apple has introduced a feature where users can use their iPhone as a webcam for Mac. Specifically, during FaceTime calls, the iPhone's photo/video camera will be used for video capture, providing more reliability and superior video quality. Additionally, users can use video modes such as Portrait, Studio Light, or Reactions when the iPhone camera is being used in FaceTime calls on Mac.
This feature is called Continuity Camera, and activation is automatic when you open the FaceTime app on Mac or MacBook, and the devices meet the minimum usage requirements. iPhone XR or newer models, with the latest version of iOS available, and a Mac or MacBook compatible with macOS Ventura or a newer operating system.

How to Use iPhone as a Webcam for Mac in FaceTime Calls
Normally, the Continuity Camera feature, allowing you to use iPhone as a webcam for Mac, activates automatically when the devices are nearby, and you open the FaceTime app on Mac or MacBook.

If you encounter issues using iPhone as a webcam for Mac, make sure that your iPhone and Mac computer are signed in to the same Apple ID (iCloud account) and that the Continuity Camera option is enabled in the AirPlay & Handoff settings.

Also, for everything to work, the iPhone and Mac computer must be close to each other and have Bluetooth and Wi-Fi connections enabled. During Continuity Camera usage, the devices should not share a cellular connection (iPhone hotspot) or internet connection.
From the Video menu of the FaceTime app or any other video calling app utilizing this feature, the user can choose whether to use the iPhone device as a webcam for Mac or its microphone.

Thus, you can use both the iPhone's photo/video cameras and its microphone for FaceTime calls made from Mac devices.
Once the connection is established, the iPhone will emit an alert sound, and options to pause camera usage or disconnect will appear on the screen.

Related: How to activate Voice Isolation on iPhone for phone calls and FaceTime
It's good to know that the option to use iPhone as a webcam for Mac is available for all video and voice calling applications, not just FaceTime.