The performance and dynamic characteristics of three-phase active power filter with PCC voltage compensation is presented and analyzed in this paper. The characteristics of parallel active filter are discussed when they are applied to nonlinear loads with current source and voltage source type, the characteristics of voltage compensator and comparison of two functions are discussed. The proposed scheme in this paper employs a PWM voltage-source inverter and has two operation modes. First, it operates as a conventional active filter with reactive power compensation while PCC voltage is in a certain range. Second, is operates as a voltage compensator while PCC voltage is out of range. Finally, the validity of this scheme is investigated through analysis of simulation and experimental results for a prototype active power filter system rated at 10KVA.