The Scottish pair ran the second- and third-fastest 800m times by British women in their Diamond League race in Monaco.
Muir’s time of one minute 56.73 seconds saw her surpass the previous best mark of 1:57.69 posted by Lynsey Sharp at the 2016 Rio Olympics.
Fellow Scot Jemma Reekie came second behind Muir, also with a time that beat Sharp’s, clocking 1:56.96.
Muir and Reekie’s efforts put them second and third in the rankings in terms of the British women’s 800m record – Dame Kelly Homes is the record-holder with a time of 1:56.21.
While Reekie is set to race in the 800m at the Tokyo Olympics, Muir has decided to focus on the 1500m.
Muir was quoted on scottishathletics.org.uk as saying: “This was my last race before Tokyo, so I just wanted to give it my best and put on paper the sort of shape that I know I am in and I am just so happy with that.
“Having a training partner like Jemma is huge, Jemma has made me a much faster 800m runner. We push each other so much and we’ve both run 1:56, so I have definitely become faster because of her.
“I am going to go home tomorrow, have a week at home before flying out to Tokyo and just train as hard as I can, so I am in even better shape in Tokyo. I want to win a medal, that is all I am focusing on.”
She added: “Running 1:56 is giving me huge confidence for Tokyo.
“I will only be running the 1500m now, I decided that only a couple of days ago, but I couldn’t have asked for a better performance today ahead of the 1500 in Tokyo.”
Muir now holds Scottish outdoor records at 800m, 1,000m, 1500m and one mile.
Elizabeth Bird, another member of Team GB’s Olympic selection, set a British record in the 3,000m steeplechase as she finished seventh in 9:22.80, taking almost four seconds off her personal best.