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This paper reports the development of a laboratory prototype of a fully digital DSP-controlled 12-kVA unified power quality conditioner (UPQC), capable of compensating for both the supply voltage and the load current imperfections. A fully digital controller based on the TMS320F2812 DSP platform is implemented for the reference generation as well as control purposes. The delay problem in the digital controller is overcome by application of a fast DSP, a compact control technique and proper flow of control steps in the DSP software. A phase-locked loop-less software grid synchronization method has been implemented for the effective operation of the UPQC under conditions of grid frequency variation. A sequence-based compensation strategy has been developed to compensate for balanced and unbalanced sags while accommodating the fact that the voltage injection capability of the UPQC is limited. The prototype UPQC power circuit, control features, and control algorithm along with experimental results are presented in this paper.