The verse you're referring to occurs in chapter 59 of the Udyoga Parva of the Mahabharata. The context is Sanjaya relaying to Dhritarashtra what transpired when he went to the Pandavas to deliver a message before the war:
Listen, O king, as I tell thee the state in which I found Krishna and Dhananjaya. I will also, O Bharata, tell thee what those heroes said; O king, with looks bent down and hands joined together, and with senses well restrained, I entered the inner apartments for conferring with those gods among men. Neither Abhimanyu nor the Twins can repair to that place where are the two Krishnas and Draupadi and lady Satyabhama. There I beheld those chastisers of foes, exhilarated with Bassia wine, their bodies adorned with garlands of flowers. Attired in excellent robes and adorned with celestial ornaments, they sat on a golden dais, decked with numerous gems, and covered over with carpets of diverse texture and hue. And I beheld Kesava's feet resting upon Arjuna's lap while those of the high-souled Arjuna rested upon the laps of Krishna and Satyabhama. Partha then pointed out to me (for a seat) a foot-stool made of gold. Touching it with my hand, I seated myself down on the ground. And when he withdraw his feet from the foot-stool, I beheld auspicious marks on both his soles. Those consisted of two longitudinal lines running from heels to fore-toe, O sire, endued with black complexions, of high statures, and erect like Sala trunks, beholding those youthful heroes, both seated on the same seat, a great fear seized me. They seemed to me to be Indra and Vishnu seated together, though Duryodhana of dull sense knoweth it no consequence of his reliance on Drona and Bhishma and on the loud vaunts of Karna. That very moment, I was convinced that the wishes of Yudhishthira the just, who had those two for obeying his orders, were certain to succeed.
And just in case someone thinks Krishna and Arjuna did something sinful, in this excerpt from his Tantra Vartika, the Purva Mimamsa Acharya Kumarila Bhatta makes clear that Krishna and Arjuna drank the kind of alcohol allowed for Kshatriyas, not the kind that is forbidden:
Then remains the case of Krishna and Arjuna being drunk with wine, ... being [an] instance[] of [a] direct transgression[] of the law. But it is only the wine distilled from grains, which is called "Sura," that is prohibited for the three higher castes; says the Smriti: "Sura is the impure essence of the grains at it is spoken of an impure; hence the Brahmana, Kshatriya and the Vaishya should never drink Sura." As for the particular wines "Madhu" (wine distilled from certain fruits, as grapes and the like), and the "Sidhu" (that distilled from molasses), these are not prohibited for the Kshatriya and the Vaishya, as "all intoxicating drunks" have been prohibited for the Brahmana alone.
Though there as a passage that declares - "all the three kinds of wine, the Gaudi (that distilled from molasses), Paishthi (that distilled from grains) and Madhvi (distilled from fruits), being the same, they should not be drunk by the Brahmavadis," - yet here the word "Brahmavidi" should be taken as denoting the Brahmanas only, as the word literally means "one who is capable of teaching Brahma", or "whose duty it is to teach Brahma", or "whose excellence lies in such teaching", and as the root "Vada"' is synonymons with "Bru" such duties are distinctly restricted to the Brahmana alone, by such texts as - "from among the three higher castes, the Brahmana, alone should teach". And it has also been pointed out in connection with the vilificatory Arthavada, that are taken along with the prohıbıtıon of wınes ın general, that the Brahmana, deluded under the influence of wine, might do many such things as should not be done which shows that wine in general is prohibited for the Brahmana only. Hence we take the passage-"All the three kinds of wine, &c.," to mean that just as the one, Sura distilled from grains, is not drinkable by the three higher castes, so are all the three undrinkable by the Brahmana. Otherwise, if the sample prohibition of wine in general were meant, then the words "Yathaiva, &c.," and "Brahmavadibhih" would be totally redundant. The mention of "the three castes" we shall supply from out of another verse. For this reason, the fact of Krishna and Aruna - both Kshatriyas - being intoxicated with Madhu (grape wine) is in no way a transgression of the law.
And, as a matter of fact, we have Vedic texts that distinctly show (1) that the prohibition of wine is for others (i. e., Brahmanas), and also (2) that it is distinctly permissible (in the case of others). For instance, (1) "That which was impure came out afterwards, wine is that ampurity, this became attached to the Kshatriya, hence it is that superiors, daughters-in-law, and the father-in-law drink the wine and go on talking; evil indeed is impurity, hence the Brahmana, should not drink the wine; lest he be attached to evil", and (2) "The Kshatriya should say to the Brahmana - the drinking of wine does no harm to him who knows this", and this latter is with reference to the "Madhu" and the "Sidhu" (and not the "Sura" which is in no case allowed to anyone else but the Shudra).
And indeed, the Sanskrit verse says "madhvāsavakṣiptāvubhau", so Kumarila Bhatta is right about Madhu being the kind of alcohol consumed.
