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This paper describes analysis results of a combined operation of the unified power quality conditioner with the distributed generation. The proposed system consists of a series inverter, a shunt inverter, and a distributed generator connected in the dc link through a rectifier. The proposed system can compensate voltage sag and swell, voltage interruption, harmonics, and reactive power in both interconnected mode and islanding mode. The performance of proposed system was analyzed using simulations with power system computer aided design/electromagnetic transients dc analysis program, and experimental results with the hardware prototype. The proposed system can improve the power quality at the point of installation on power distribution systems or industrial power systems.