Abstract This paper deals with a Distribution STATic COMpensator (DSTATCOM) for balancing of source currents, power factor correction and harmonic mitigation in three-phase, three-wire distribution system supplying delta connected load under various source voltage conditions. The control strategy applied to the DSTATCOM play a major role in its performance. A novel approach based on an improved instantaneous active and reactive current component (IARCC) theory is proposed for generation of three-phase reference currents for DSTATCOM. A three-phase voltage source converter with a dc bus capacitor is employed as DSTACOM which will track the reference currents in a hysteresis band scheme. The performance of DSTATCOM is evaluated under sinusoidal, unbalanced sinusoidal and unbalanced distorted source voltage conditions. Variation in load current, variation in magnitude and harmonic content in source voltage has been considered. Delta connected linear as well as non-linear load conditions have been considered. The performance of the DSTATCOM using the proposed control strategy is demonstrated using simulation results in MATLAB/SIMULINK software. Simulation results demonstrate the feasibility of proposed scheme for the control of DSTACOM.