Even though many studies have been deployed to determine the optimal planning and operation of microgrids, limited research was discussed to determine the optimal microgrids’ geographical boundaries. This paper proposes a zonal-based optimal microgrid identification model aiming at identifying the optimal microgrids topology in the current distribution systems through zoning the network into several clusters. In addition, the proposed model was developed as a mixed-integer linear programming (MILP) problem that identifies the optimal capacity and location of installing distributed energy resources (DERs), including but not limited to renewable energy resources and Battery Energy Storage Systems (BESS), within the determined microgrid’s boundaries. Moreover, it investigates the impact of incorporating the BESS in boosting the DERs’ penetration on the optimal centralized microgrid. Numerical simulations on the IEEE-33 bus test system demonstrate the features and effectiveness of the proposed model on identifying the optimal microgrid geographical boundaries on current distribution grids as well as its capability on defining the optimal sizes and locations of installing DERs within the microgrid’s zonal area.