This paper proposes a Direct Matrix Converter operating as a Unified Power Flow Controller (DMC-UPFC) with an advanced control method for UPFC, based on the Lyapunov direct method, presenting good results in power quality assessment. This control method is used for real-time calculation of the appropriate matrix switching state, determining which switching state should be applied in the following sampling period. The control strategy takes into account active and reactive power flow references to choose the vector converter closest to the optimum. Theoretical principles for this new real-time vector modulation and control applied to the DMC-UPFC with input filter are established. The method needs DMC-UPFC dynamic equations to be solved just once in each control cycle, to find the required optimum vector, in contrast to similar control methods that need 27 vector estimations per control cycle. The designed controller’s performance was evaluated using Matlab/Simulink software. Controllers were also implemented using a digital signal processing (DSP) system and matrix hardware. Simulation and experimental results show decoupled transmission line active (P) and reactive (Q) power control with zero theoretical error tracking and fast response. Output currents and voltages show small ripple and low harmonic content.