This paper presents a novel compensation technology of static synchronous compensator integrated with distribution transformer (DT-STATCOM). STATCOM is connected with the transformer taps at the high-voltage (HV) windings. By selecting the appropriate tap voltage level, it can help to make full use of the spare capacity of the distribution transformer, simplify the main circuit topology of STATCOM, and reduce the current level of power devices. The theoretical basis for DT-STATCOM reactive power compensation is explained. For the Dyn-type transformer, the structure of DT-STATCOM with multigroup taps at the transformer HV windings is mainly designed, and its influence on the current distribution in the transformer windings is analyzed. Besides, according to the characteristics of DT-STATCOM, this paper also proposes a reactive command current calculating method based on the principle of power balance, and adopts a hysteresis current control method with a variable hysteresis band. Simulation and experimental results verify the correctness of the proposed DT-STATCOM structure and its control method.