Power distribution network consists of mostly non-linear loads and power electronic related devices, that cause power quality issues like power interruptions, voltage sag, voltage swell, harmonic distortions. In this paper, modified instantaneous reactive power theory is used as a control technique for distribution static compensator (DSTATCOM) for reactive power compensation and voltage balancing in the distribution network. In this algorithm for the formation of reference compensator currents sequence voltages are extracted. Hysteresis controlled PWM technique is employed for the generation of switching pulses for the neutral clamped capacitor split voltage source inverter. MATLAB-Simulink Software environment is used to implement the DSTATCOM in the distribution system.