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The consumption of reactive power is stochastic in nature for the distribution system. This uncertain variation of the reactive power leads to 1) Variation of voltage at the point of common coupling(PCC) 2)Low power factor 3)low efficiency 4) improper utilization of distribution system and 5) loss of synchronism for a grid connected inverter based - distributed generation. Now a day's distributed generation (DG) system uses current regulated PWM voltage-source inverters (VSI) for synchronizing the utility grid with DG source in order to ensure the grid stability. In this paper reactive power compensation based hysteresis controller and adaptive hysteresis controller is analyzed for inverter interfaced DG which can control the active and reactive power independently. The adaptive hysteresis controller can reduce the current harmonic at PCC considerably which ensures lower total harmonic distortion (THD). The performance indices include THD of the grid current, fast current tracking during steady state and transient conditions. The studied system is modeled and simulated in the MATLAB Simulink environment.