A novel UPQC(Unified Power Quality Conditioner), which consists of series inverter, shunt inverter, distributed generation system, is proposed. The proposing system can compensate reactive power, harmonics, voltage sag and swell, voltage interruption etc. through the change of paralleling operation mode and islanding operation mode. The control strategy for the proposing system was derived using the instantaneous power method. The performance of proposing system was analyzed by means of the PSCAD/EMTDC simulation and the experimental work with the hardware prototype. The proposing system has the ultimate capability of improving power quality at the point of installation on power distribution systems or Industrial power systems and can be utilized for the custom power device in th future distribution system.