It doesn't work for me, either. I wonder what we're missing…
These are the instructions for Text in Markup on this page:
Use Markup to add text, shapes, stickers, and more to documents on iPhone – Apple Support (UK)
Add text
- In a supported app, tap
or Markup. - In the Markup toolbar, tap
, then tap Add Text. - Tap the text box, then use the keyboard to enter text.
- To adjust the text’s font, size, justification, style, or color, tap the tools at the bottom of the screen.
- To cut, copy, duplicate, or delete the text box, tap
. - When you’re done, tap outside the text box.
- To close the Markup toolbar, tap
or Done.
I bolded the relevant text. But I tried, and I can't get to the tools while the text is active. Let's let Apple know by leaving feedback here:
Feedback - Photos - Apple
Of course, it may be that we are both missing something obvious…