This paper presents a new control approach of DSTATCOM (distribution static compensator) for compensation of reactive power, unbalanced loading and harmonic currents under unbalanced non-sinusoidal ac mains. The control of DSTATCOM is achieved using Adaline based current estimator based on LMS algorithm to maintain source currents real and undistorted. The dc bus voltage of voltage source converter (VSC) working as DSTATCOM is maintained at constant voltage using a proportional-integral (PI) controller. The DSTATCOM system alongwith proposed control scheme is modeled in MATLAB to simulate the behavior of the system. The practical implementation of the DSTATCOM is carried out using dSPACE DS1104 R&D controller having TMS320F240 as a slave DSP. Simulated and implementation results are presented to demonstrate the effectiveness of the DSTATCOM with Adaline based control to meet the severe load perturbations with different types of loads (linear and non-linear) under distorted and unbalanced AC mains.