In this paper, the development of a cost-effective active power filter/uninterruptible power supply (APF/UPS) system with seamless mode transfer is described. The proposed scheme employs a pulse-width-modulation (PWM) voltage-source inverter and has two operational modes. First, when the source voltage is normal, the system operates as an APF, which compensates for the harmonics and power factor while boosting the DC-link voltage to be ready for the disturbance, without an additional DC charging circuit. A simple algorithm to detect the load current harmonics is also proposed. Second, when the source voltage is out of the normal range (owing to sag, swell, or outage), it operates a UPS, which controls the output voltage constantly by discharging the DC-link capacitor. Furthermore, a seamless transfer method for the single-phase inverter between the APF mode and the UPS mode is also proposed, in which an IGBT switch with diodes is used as a static bypass switch. Dissimilar to a conventional SCR switch, the IGBT switch can implement a seamless mode transfer. During the UPS operation, when the source voltage returns to the normal range, the system operates as an APF. The proposed system has good transient and steady-state response characteristics. The APF, charging circuit, and UPS systems are implemented in one inverter system. Finally, the validity of the proposed scheme is investigated with simulated and experimental results for a prototype APF/UPS system rated at 3 kVA.