In this work, an implementation of DSTATCOM (Distribution Static Compensator) is discussed in distributed power generation system using composite observer based control technique. The proposed control technique is employed for fundamental components extraction of distorted generator load currents. Extracted these components are used estimation of reference source currents to generate gating signals of DSTATCOM. The above mentioned control technique is implemented for mitigation of higher demand of reactive power, distortion in term of harmonics and load balancing under linear/nonlinear loads. The performance of DSTATCOM is observed satisfactory for these consumer loads with regulated generator voltage at point of common coupling (PCC) and self supported dc link.