This paper describes the development of a multifunction control strategy for the stable operation of distributed generation (DG) units during the integration with the power grid. The proposed control model is based on direct Lyapunov control (DLC) theory and provides a stable region for the proper operation of DG units during the integration with the power grid. The compensation of instantaneous variations in the reference current components in ac-side and dc-voltage variations in the dc-side of the interfacing system are adequately considered in this control plan, which is the main contribution and novelty of this paper in comparison with previous control strategies. Utilization of the DLC technique in DG technology can confirm the continuous injection of maximum active power in fundamental frequency from the DG source to the power grid, compensating all the reactive power and harmonic current components of grid-connected loads through the integration of DG link into the grid. Application of this concept in smart grids system can guarantee to reduce the stress on the utility grid during the peak of energy demand. Simulation and experimental test results are presented to demonstrate the proficiency and performance of the proposed DLC technique in DG technology.