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Development of “Q” and “R” matrices for designing a Linear Quadratic Regulator (LQR) is still a research challenge. The theory says they should belong to the group of positive definite matrices, so we need to find out the most suitable amongst them in order to obtain the desired response. In this paper biogeography based optimization (BBO) technique has been applied to come up with the best “Q” and “R” matrices such that the frequency excursion following a disturbance in a microgrid is minimized. As all the states in a practical system may not be measurable hence, we have used Kalman estimator to estimate them. These estimated states along with other measured states are used by the LQR to produce the desired control signal. The microgrid is made smarter by using the agent based scheme integrated with a master controller and a proper communication protocol. The simulation results show that the proposed approach improves the microgrid frequency response and also gives a new alternative method for frequency control of a smart microgrid.